Sixth Street Specialty Lending 10Q 2021 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission File Number 001-36364

Sixth Street Specialty Lending, Inc.

(Exact name of registrant as specified in its charter)

Delaware	27-3380000
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2100 McKinney Avenue, Suite 1500, Dallas, TX	75201
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (469) 621-3001

Not applicable

Former name, former address and former fiscal year, if changed since last report.

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	TSLX	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock, $.01 par value per share, outstanding at May 4, 2021 was 72,618,759.

SIXTH STREET SPECIALTY LENDING, INC.

	INDEX	PAGE NO.

PART I.	FINANCIAL INFORMATION	4

Item 1.	Financial Statements	4

	Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020	4

	Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (Unaudited)	5

	Consolidated Schedules of Investments as of March 31, 2021 (Unaudited) and December 31, 2020	6

	Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2021 and 2020 (Unaudited)	20

	Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (Unaudited)	21

	Notes to Consolidated Financial Statements (Unaudited)	22

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	69

Item 4.	Controls and Procedures	71

PART II.	OTHER INFORMATION	72

Item 1.	Legal Proceedings	72

Item 1A.	Risk Factors	72

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77

Item 3.	Defaults Upon Senior Securities	77

Item 4.	Mine Safety Disclosures	77

Item 5.	Other Information	77

Item 6.	Exhibits	77

SIGNATURES		78

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.

In addition to factors previously identified elsewhere in the reports and other documents Sixth Street Specialty Lending, Inc. has filed with the Securities and Exchange Commission, or SEC, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:

•

an economic downturn, including the current and future economic effects of the COVID-19 pandemic, could impair our portfolio companies’ abilities to continue to operate, which could lead to the loss of some or all of our investments in those portfolio companies;

•

such an economic downturn could disproportionately impact the companies in which we have invested and others that we intend to target for investment, potentially causing us to experience a decrease in investment opportunities and diminished demand for capital from these companies;

•

such an economic downturn could also impact availability and pricing of our financing;

•

an inability to access the capital markets could impair our ability to raise capital and our investment activities; and

•

the risks, uncertainties and other factors we identify in the section entitled “Risk Factors” in this report, in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 17, 2021, and elsewhere in our filings with the SEC.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law.

The “TSLX” and “TAO” marks are marks of Sixth Street. Sixth Street and TPG are no longer affiliates, and accordingly, TPG is not an affiliate of ours.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Sixth Street Specialty Lending, Inc.

Consolidated Balance Sheets

(Amounts in thousands, except share and per share amounts)

(Unaudited)

	March 31,			December 31,
	2021			2020
Assets
Investments at fair value
Non-controlled, non-affiliated investments (amortized cost of $2,258,598 and $2,187,427, respectively)	$	2,329,835		$	2,249,302
Non-controlled, affiliated investments (amortized cost of $12,835 and $12,892, respectively)		14,917			12,892
Controlled, affiliated investments (amortized cost of $60,027 and $58,709, respectively)		37,994			36,676
Total investments at fair value (amortized cost of $2,331,460 and $2,259,028, respectively)		2,382,746			2,298,870
Cash and cash equivalents (restricted cash of $16,315 and $10,815, respectively)		19,992			13,274
Interest receivable		10,878			8,583
Prepaid expenses and other assets		4,294			17,866
Total Assets	$	2,417,910		$	2,338,593
Liabilities
Debt (net of deferred financing costs of $23,730 and $17,246, respectively)	$	1,070,633		$	1,110,363
Management fees payable to affiliate		8,782			8,435
Incentive fees payable to affiliate		13,747			8,673
Dividends payable		119,409			27,728
Other payables to affiliate		2,971			2,632
Other liabilities		17,036			19,447
Total Liabilities		1,232,578			1,177,278
Commitments and contingencies (Note 8)
Net Assets
Preferred stock, $0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.01 par value; 400,000,000 shares authorized, 72,266,042 and 67,980,253 shares issued, respectively; and 71,969,998 and 67,684,209 shares outstanding, respectively		723			680
Additional paid-in capital		1,115,370			1,025,676
Treasury stock at cost; 296,044 and 296,044 shares held, respectively		(4,291	)		(4,291	)
Distributable earnings		73,530			139,250
Total Net Assets		1,185,332			1,161,315
Total Liabilities and Net Assets	$	2,417,910		$	2,338,593
Net Asset Value Per Share	$	16.47		$	17.16

The accompanying notes are an integral part of these consolidated financial statements.

Sixth Street Specialty Lending, Inc.

Consolidated Statements of Operations

(Amounts in thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended
	March 31, 2021			March 31, 2020
Income
Investment income from non-controlled, non-affiliated investments:
Interest from investments	$	61,765		$	60,766
Dividend income		507			432
Other income		2,277			2,787
Total investment income from non-controlled, non-affiliated investments		64,549			63,985
Investment income from non-controlled, affiliated investments:
Interest from investments		211			1,236
Dividend income		545			—
Other income		—			19
Total investment income from non-controlled, affiliated investments		756			1,255
Investment income from controlled, affiliated investments:
Interest from investments		936			1,027
Other income		1			3
Total investment income from controlled, affiliated investments		937			1,030
Total Investment Income		66,242			66,270
Expenses
Interest		8,953			12,910
Management fees		8,738			8,165
Incentive fees		12,326			7,140
Professional fees		1,395			1,645
Directors’ fees		194			228
Other general and administrative		1,866			1,510
Total expenses		33,472			31,598
Management and incentive fees waived (Note 3)		—			—
Net Expenses		33,472			31,598
Net Investment Income Before Income Taxes		32,770			34,672
Income taxes, including excise taxes		460			1,010
Net Investment Income		32,310			33,662
Unrealized and Realized Gains (Losses)
Net change in unrealized gains (losses):
Non-controlled, non-affiliated investments		9,363			(92,759	)
Non-controlled, affiliated investments		2,082			(1,394	)
Controlled, affiliated investments		(1	)		(13,507	)
Translation of other assets and liabilities in foreign currencies		133			13,799
Interest rate swaps		(1,822	)		9,181
Total net change in unrealized gains (losses)		9,755			(84,680	)
Realized gains (losses):
Non-controlled, non-affiliated investments		14,619			75
Non-controlled, affiliated investments		(33	)		—
Controlled, affiliated investments		—			(2,097	)
Foreign currency transactions		1			(59	)
Total net realized gains (losses)		14,587			(2,081	)
Total Net Unrealized and Realized Gains (Losses)		24,342			(86,761	)
Increase (Decrease) in Net Assets Resulting from Operations	$	56,652		$	(53,099	)
Earnings (Loss) per common share—basic	$	0.81		$	(0.80	)
Weighted average shares of common stock outstanding—basic		69,691,162			66,656,280
Earnings (Loss) per common share—diluted	$	0.75		$	(0.80	)
Weighted average shares of common stock outstanding—diluted		77,356,492			66,656,280

The accompanying notes are an integral part of these consolidated financial statements.

Sixth Street Specialty Lending, Inc.

Consolidated Schedule of Investments as of March 31, 2021

(Amounts in thousands, except share amounts)

(Unaudited)

Company ⁽¹⁾	Investment	Initial Acquisition Date	Reference Rate and Spread			Interest Rate			Amortized Cost ⁽²⁾⁽⁸⁾		Fair Value ⁽¹⁰⁾		Percentage of Net Assets
Debt Investments
Business services
Acceo Solutions, Inc.^(3)(4)(5)	First-lien loan (CAD 74,625 par, due 10/2025)	7/6/2018		C + 5.25	%		6.25	%	$	56,030	$60,562 (CAD 76,118)			5.0	%
Alpha Midco, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($64,154 par, due 8/2025)	8/15/2019		L + 7.50	%		8.50	%		62,840		65,192		5.5	%
ForeScout Technologies, Inc. ⁽³⁾	First-lien loan ($4,772 par, due 8/2026)	8/17/2020		L + 9.50	%	10.50% (incl. 9.50% PIK)				4,657		4,759		0.4	%
Integration Appliance, Inc.⁽³⁾	First-lien loan ($71,500 par, due 8/2023)	8/13/2018		L + 7.25	%		8.25	%		70,912		72,036		6.1	%
	First-lien revolving loan ($1,310 par, due 8/2023)	8/13/2018		L + 7.25	%		8.25	%		1,291		1,329		0.1	%
Motus, LLC ⁽³⁾⁽⁵⁾	First-lien loan ($61,641 par, due 1/2024)	1/17/2018		L + 5.50	%		6.50	%		60,811		62,103		5.2	%
Netwrix Corp.⁽³⁾⁽⁵⁾	First-lien loan ($64,140 par, due 9/2026)	9/30/2020		L + 6.50	%		7.50	%		62,672		63,578		5.4	%
Nintex Global, Ltd.⁽³⁾⁽⁵⁾	First-lien loan ($79,495 par, due 4/2024)	3/30/2018		L + 6.75	%		7.75	%		78,261		81,907		6.9	%
ReliaQuest Holdings, LLC⁽³⁾⁽⁵⁾	First-lien loan ($38,191 par, due 10/2026)	10/8/2020		L + 8.25	%		9.25	%		37,165		38,019		3.2	%
ServiceChannel Holdings, Inc.⁽⁹⁾	Second-lien loan ($5,520 par, due 6/2025)	6/3/2020		12.00	%	12.00% PIK				5,168		5,505		0.5	%
Sprinklr, Inc.	Convertible note ($4,017 par, due 5/2025)	5/20/2020		9.88	%	9.88% PIK				3,989		4,590		0.4	%
WideOrbit, Inc.⁽³⁾	First-lien loan ($59,792 par, due 7/2025)	7/8/2020		L + 8.50	%		9.75	%		58,936		61,244		5.2	%
										502,732		520,824		43.9	%
Communications
IntelePeer Holdings, Inc.	First-lien loan ($43,642 par, due 12/2024) ⁽³⁾	12/2/2019		L + 8.25	%		9.75	%		43,543		43,314		3.7	%
	Convertible note ($1,750 par, due 12/2024)	2/28/2020		8.00	%	8.00% PIK				1,732		2,726		0.2	%
										45,275		46,040		3.9	%
Education
EMS Linq, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($34,825 par, due 9/2025)	9/17/2020		L + 7.75	%		8.75	%		33,860		34,912		2.9	%
Follet Corp. ⁽³⁾	First-lien loan ($75,000 par, due 11/2025)	11/25/2020		L + 7.75	%		8.75	%		73,409		73,875		6.2	%
Frontline Technologies Group, LLC ⁽³⁾	First-lien loan ($84,621 par, due 9/2023)	9/18/2017		L + 5.75	%		6.75	%		84,296		85,044		7.2	%
Illuminate Education, Inc.⁽³⁾⁽⁵⁾	First-lien loan ($63,213 par, due 8/2022)	8/25/2017		L + 6.25	%		7.25	%		62,775		63,529		5.4	%
										254,340		257,360		21.7	%
Financial services
AvidXchange, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($10,953 par, due 4/2024)	10/1/2019		L + 9.00	%		10.00	%		10,849		11,082		0.9	%
Bear OpCo, LLC ⁽³⁾⁽⁵⁾	First-lien loan ($19,725 par, due 10/2024)	10/10/2019		L + 6.50	%		7.50	%		19,316		19,577		1.7	%
BlueSnap, Inc. ⁽³⁾	First-lien loan ($35,000 par, due 10/2024)	10/25/2019		L + 7.00	%		8.00	%		34,472		35,262		3.0	%
	First-lien revolving loan ($2,500 par, due 10/2024)	10/25/2019		P + 6.00	%		9.25	%		2,464		2,519		0.2	%

G Treasury SS, LLC ⁽³⁾⁽⁵⁾	First-lien loan ($47,121 par, due 4/2023)	4/9/2018	L + 8.25	%		9.25	%	46,444		47,934	4.0	%
GC Agile Holdings, Ltd. ⁽³⁾⁽⁴⁾	First-lien loan ($39,223 par, due 6/2025)	1/31/2019	L + 7.00	%		8.25	%	38,742		39,812	3.4	%
InvMetrics Holdings, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($53,067 par, due 12/2025)	12/30/2020	L + 6.25	%		7.25	%	51,751		52,242	4.4	%
Kyriba Corp.⁽³⁾	First-lien loan ($14,234 par, due 4/2025)	4/9/2019	L + 9.00	%	10.50% (incl. 9.00% PIK)			13,970		14,752	1.2	%
	First-lien loan (EUR 8,474 par, due 4/2025)	4/9/2019	E + 9.00	%	9.00% PIK			9,349	10,259 (EUR 8,729)		0.9	%
	First-lien revolving loan ($1,411 par, due 4/2025)	4/9/2019	L + 7.25	%		8.75	%	1,381		1,454	0.1	%
	First-lien revolving loan (EUR 336 par, due 4/2025)	4/9/2019	E + 7.25	%		7.25	%	369	407 (EUR 346)		0.0	%
PayLease, LLC ⁽³⁾	First-lien loan ($63,507 par, due 7/2022)	7/28/2017	L + 7.25	%		8.25	%	63,093		64,301	5.4	%
	First-lien revolving loan ($3,333 par, due 7/2022)	7/28/2017	L + 7.25	%		8.25	%	3,316		3,375	0.3	%
PrimeRevenue, Inc. ⁽³⁾	First-lien loan ($22,507 par, due 12/2023)	12/31/2018	L + 9.50	%		11.00	%	22,316		23,450	2.0	%
								317,832		326,426	27.5	%
Healthcare
BCTO Ace Purchaser, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($39,900 par, due 11/2026)	11/23/2020	L + 6.50	%		7.50	%	38,804		39,700	3.3	%
Caris Life Sciences, Inc.	First-lien loan ($5,000 par, due 9/2023)	9/21/2018	11.30	%		11.30	%	4,897		5,362	0.5	%
	First-lien loan ($3,750 par, due 4/2025)	4/2/2020	11.30	%		11.30	%	3,511		4,116	0.3	%
	Convertible note ($2,602 par, due 9/2023)	9/21/2018	8.00	%		8.00	%	2,602		6,310	0.5	%
Clinicient, Inc.⁽³⁾	First-lien loan ($15,000 par, due 5/2024)	5/31/2019	L + 7.00	%		8.50	%	14,898		15,150	1.3	%
	First-lien revolving loan ($2,400 par, due 5/2024)	5/31/2019	L + 7.00	%		8.50	%	2,375		2,440	0.2	%
Integrated Practice Solutions, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($49,250 par, due 10/2024)	6/30/2017	L + 7.50	%		8.50	%	47,876		50,974	4.3	%
Valant Medical Solutions, Inc. ⁽³⁾	First-lien loan ($28,836 par, due 4/2024)	4/8/2019	L + 8.75	%		10.25	%	28,249		29,370	2.5	%
	First-lien revolving loan ($1,500 par, due 4/2024)	4/8/2019	L + 8.75	%		10.25	%	1,476		1,535	0.1	%
								144,688		154,957	13.0	%
Hotel, gaming, and leisure
IRGSE Holding Corp. ⁽³⁾⁽⁷⁾	First-lien loan ($30,256 par, due 9/2021)	9/29/2015	L + 9.50	%	10.00% (incl. 5.00% PIK)			28,590		29,349	2.5	%
	First-lien revolving loan ($7,996 par, due 9/2021)	9/29/2015	L + 9.50	%	10.00% (incl. 5.00% PIK)			7,997		7,752	0.7	%
								36,587		37,101	3.2	%
Human resource support services
Absorb Software, Inc. ^(3)(4)(5)	First-lien loan ($34,400 par, due 5/2024)	7/31/2019	L + 6.50	%		7.50	%	33,871		35,174	3.0	%
ClearCompany, LLC ⁽³⁾	First-lien loan ($20,182 par, due 7/2023)	7/23/2018	L + 8.75	%	10.25% (incl. 2.50% PIK)			20,049		20,384	1.7	%
DaySmart Holdings, LLC ⁽³⁾⁽⁵⁾	First-lien loan ($41,851 par, due 10/2025)	12/18/2020	L + 7.25	%		8.75	%	41,845		41,970	3.5	%

	First-lien revolving loan ($3,000 par, due 10/2025)	12/18/2020	L + 7.25	%		8.75	%	3,003		3,008	0.3	%
PageUp People, Ltd. ⁽³⁾⁽⁴⁾	First-lien loan (AUD 51,323 par, due 12/2022)	1/11/2018	B + 7.25	%	8.50% (incl. 1.25% PIK)			39,451	39,412 (AUD 51,745)		3.4	%
PayScale Holdings, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($70,000 par, due 5/2024)	5/3/2019	L + 6.00	%		7.00	%	68,726		70,700	6.0	%
Modern Hire, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($30,036 par, due 5/2024)	5/15/2019	L + 7.00	%		8.50	%	29,478		30,637	2.6	%
Workwell Acquisition Co. ⁽³⁾⁽⁵⁾	First-lien loan ($19,900 par, due 10/2025)	10/19/2020	L + 7.50	%		8.50	%	19,222		19,900	1.7	%
								255,645		261,185	22.2	%
Insurance
Riskonnect, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($50,573 par, due 10/2023)	6/30/2017	L + 7.00	%		8.25	%	50,219		51,079	4.3	%
Internet services
Higher Logic, LLC⁽³⁾⁽⁵⁾	First-lien loan ($49,875 par, due 1/2024)	6/18/2018	L + 7.25	%		8.25	%	49,432		50,374	4.2	%
Lithium Technologies, LLC ⁽³⁾	First-lien loan ($54,700 par, due 10/2022)	10/3/2017	L + 8.00	%		9.00	%	54,244		53,540	4.5	%
Lucidworks, Inc. ⁽⁹⁾	First-lien loan ($13,129 par, due 7/2024)	7/31/2019	12.00	%	12.00% (incl. 7.00% PIK)			13,025		13,326	1.1	%
Piano Software, Inc.⁽³⁾⁽⁵⁾	First-lien loan ($38,404 par, due 2/2026)	2/25/2021	L + 6.50	%		7.50	%	37,500		37,444	3.2	%
								154,201		154,684	13.0	%
Marketing Services
Acoustic, L.P.⁽³⁾	First-lien note ($33,000 par, due 6/2024)	12/17/2019	L + 7.00	%		8.50	%	32,415		32,010	2.7	%
Office products
USR Parent, Inc.⁽³⁾⁽⁵⁾	ABL FILO term loan ($7,232 par, due 9/2022)	9/12/2017	L + 7.75	%		8.75	%	7,173		7,268	0.6	%
Oil, gas and consumable fuels
MD America Energy, LLC ⁽³⁾⁽⁶⁾	First-lien loan ($8,944 par, due 12/2024)	11/14/2018	L + 7.75	%		9.25	%	8,944		8,944	0.8	%
Mississippi Resources, LLC ^(3)(7)(16)	First-lien loan ($1,500 par, due 12/2021)	6/29/2018	P + 8.00	%		12.00	%	1,498		—	0.0	%
Verdad Resources Intermediate Holdings, LLC ⁽³⁾	First-lien loan ($25,233 par, due 10/2024)	4/10/2019	L + 7.50	%		9.50	%	24,750		25,539	2.2	%
								35,192		34,483	3.0	%
Other
Lexipol, LLC ⁽³⁾⁽⁵⁾	First-lien loan ($19,712 par, due 10/2025)	10/8/2020	L + 5.75	%		6.75	%	19,393		19,862	1.7	%
Omnigo Software, LLC ⁽³⁾⁽⁵⁾	First-lien loan ($34,000 par, due 3/2026)	3/31/2021	L + 6.50	%		7.50	%	33,218		33,235	2.8	%
								52,611		53,097	4.5	%
Pharmaceuticals											��
Biohaven Pharmaceuticals, Inc.⁽³⁾⁽⁴⁾	First-lien loan ($28,227 par, due 8/2025)	8/7/2020	L + 9.00	%	10.00% (incl. 4.00% PIK)			27,204		29,115	2.5	%
TherapeuticsMD, Inc. ⁽³⁾⁽⁴⁾	First-lien loan ($30,000 par, due 3/2024)	4/24/2019	L + 7.75	%		10.45	%	28,793		30,000	2.5	%
								55,997		59,115	5.0	%
Real Estate
ResMan, LLC ⁽³⁾	First-lien loan ($40,269 par, due 10/2024)	10/3/2019	L + 9.50	%		10.50	%	40,080		40,269	3.4	%
Retail and consumer products
99 Cents Only Stores LLC ⁽³⁾	ABL FILO term loan ($25,000 par, due 5/2025)	9/6/2017	L + 8.50	%		9.50	%	24,649		25,687	2.2	%

American Achievement, Corp. ⁽³⁾	First-lien loan ($24,116 par, due 9/2026)	9/30/2015	L + 6.25	%	7.25% (incl. 4.25% PIK)			23,175	21,101	1.8	%
	First-lien revolving loan ($953 par, due 9/2026)	2/9/2021	L + 6.25	%	7.25% (incl. 4.25% PIK)			953	953	0.1	%
	Subordinated note ($4,740 par, due 9/2026) ⁽¹⁶⁾	3/16/2021	L + 1.00	%	2.00% PIK			545	545	0.0	%
Designer Brands, Inc.⁽³⁾⁽⁴⁾	ABL First-lien loan ($48,750 par, due 8/2025)	8/7/2020	L + 8.50	%		9.75	%	47,657	48,872	4.1	%
J.C. Penney Company, Inc. ^(11)(13)	First-lien loan ($4,129 par, due 6/2023)	6/5/2019	—			—		3,153	10	0.0	%
	First-lien secured note ($12,372 par, due 7/2023)	6/5/2019	—			—		10,112	31	0.0	%
Maurices, Inc. ⁽³⁾⁽⁵⁾	ABL FILO term loan ($31,111 par, due 5/2024)	5/6/2019	L + 6.50	%		7.75	%	30,431	31,811	2.7	%
Moran Foods, LLC ⁽³⁾	ABL FILO term loan ($36,167 par, due 4/2024)	4/1/2020	L + 7.50	%		9.00	%	35,602	36,890	3.1	%
Penney Borrower, LLC ⁽³⁾	ABL FILO term loan ($72,000 par, due 12/2025)	12/7/2020	L + 8.50	%		9.25	%	70,387	71,100	6.0	%
	First-lien term loan ($6,912 par, due 12/2026) ⁽¹¹⁾	12/7/2020	L + 8.50	%		9.50	%	5,857	6,450	0.5	%
								252,521	243,450	20.5	%
Total Debt Investments								2,237,508	2,279,348	192.4	%

Equity and Other Investments
Business Services
Motus, LLC ⁽¹³⁾	Class A Units (1,262 units)	1/17/2018						1,262	3,744	0.3	%
	Class B Units (517,020 units)	1/17/2018						—	—	0.0	%
Nintex Global, Ltd. ⁽¹³⁾	Class A Shares (1,197 shares)	3/30/2018						1,197	3,948	0.4	%
	Class B Shares (398,557 shares)	3/30/2018						12	40	0.0	%
ServiceChannel Holdings, Inc. ^(13)(14)	207,991 Warrants	6/3/2020						335	349	0.0	%
WideOrbit, Inc. ^(13)(14)	1,567,807 Warrants	7/8/2020						327	327	0.0	%
								3,133	8,408	0.7	%
Communications
IntelePeer Holdings, Inc. ⁽¹³⁾	280,000 Warrants	2/28/2020						183	304	0.0	%
Education
EMS Linq, Inc. ^(13)(14)	Common Units (474,684 units)	11/2/2020						1,500	1,500	0.1	%
Financial services
AvidXchange, Inc.	Common Shares (2,198 shares) ^(13)(14)	4/7/2020						109	160	0.0	%
	Preferred Shares (293,232 shares)	10/1/2019						16,243	16,812	1.4	%
	Series F Preferred Shares (8,791 shares) ^(13)(14)	4/7/2020						438	639	0.1	%
	75,016 Warrants ⁽¹³⁾	10/1/2019						475	2,708	0.2	%
Newport Parent Holdings, LP ^(13)(14)	Class A-2 Units (131,569 units)	12/10/2020						4,177	4,177	0.4	%
Oxford Square Capital Corp. ^(4)(12)	Common Shares (1,620 shares)	8/5/2015						6	8	0.0	%
								21,448	24,504	2.1	%
Healthcare
Caris Life Sciences, Inc. ⁽¹³⁾	Series C Preferred Shares (362,319 shares)⁽¹⁴⁾	10/13/2020						1,000	1,402	0.1	%
	633,376 Warrants	9/21/2018						192	1,384	0.1	%
	569,991 Warrants⁽¹⁴⁾	4/2/2020						250	1,104	0.1	%
Valant Medical Solutions, Inc. ^(13)(15)	Class A Units (51,429 units) ⁽¹⁴⁾	3/10/2021						51	51	0.0	%
	954,478 Warrants	4/8/2019						281	281	0.0	%
								1,774	4,222	0.3	%

Hotel, gaming, and leisure
IRGSE Holding Corp. ^(7)(13)	Class A Units (33,790,171 units) ⁽¹⁴⁾	12/21/2018						21,842		845	0.1	%
	Class C-1 Units (8,800,000 units)	12/21/2018						100		48	0.0	%
								21,942		893	0.1	%
Human resource support services
ClearCompany, LLC ^(13)(15)	Series A Preferred Units (1,429,228 units)	8/24/2018						2,014		4,421	0.4	%
DaySmart Holdings, LLC ^(13)(14)(15)	Class A Units (166,811 units)	10/1/2019						1,347		1,663	0.1	%
								3,361		6,084	0.5	%
Insurance
Riskonnect, Inc. ⁽¹³⁾	Common Shares Class A (1,020 units)	6/30/2017						1,020		2,208	0.2	%
	Common Shares Class B (987,929 units)	6/30/2017						10		22	0.0	%
								1,030		2,230	0.2	%
Internet Services
Lucidworks, Inc. ⁽¹³⁾	Series F Preferred Shares (199,054 shares)	8/2/2019						800		922	0.1	%
Marketing services
Validity, Inc. ⁽¹³⁾	Series A Preferred Shares (3,840,000 shares)	5/31/2018						3,840		12,365	1.0	%
Oil, gas and consumable fuels
SMPA Holdings, LLC ^(6)(14)	Common Units (15,000 units)	12/24/2020						3,891		5,973	0.5	%
Pharmaceuticals
TherapeuticsMD, Inc. ^(13)(14)	712,817 Warrants	8/5/2020						1,029		643	0.1	%
Retail and consumer products
American Achievement, Corp. ^(13)(14)	Class A Units (687 units)	3/16/2021						—		—	0.0	%
Copper Bidco, LLC ^(11)(14)	Trust Certificates (132,928 Certificates)	12/7/2020						930		1,373	0.1	%
	Trust Certificates (996,958 Certificates)	1/30/2021						15,453		18,145	1.5	%
NMG Parent, LLC Com Unit ^(11)(13)(14)	Common Units (110,210 units)	9/29/2020						6,613		7,770	0.7	%
								22,996		27,288	2.3	%

Other Investments
Bain Capital Credit CLO Ltd, Series 2018-1A ^(3)(4)(11)	Structured Product ($500 par, due 4/2031)	10/15/2020	L + 5.35	%	5.56	%		413		460	0.0	%
Carlyle Global Market Strategies CLO Ltd, Series 2018-1A ^(3)(4)(11)	Structured Product ($1,550 par, due 4/2031)	8/11/2020	L + 5.75	%	5.97	%		1,208		1,484	0.1	%
Carlyle Global Market Strategies CLO Ltd, Series 2017-4A ^(3)(4)(11)	Structured Product ($4,150 par, due 1/2030)	9/3/2020	L + 6.15	%	6.39	%		3,414		3,833	0.3	%
Madison Park Funding Ltd, Series 2014-14A ^(3)(4)(11)	Structured Product ($2,400 par, due 10/2030)	8/11/2020	L + 5.80	%	6.02	%		1,990		2,285	0.2	%
								7,025		8,062	0.6	%
Total Equity and Other Investments								93,952		103,398	8.6	%
Total Investments							$	2,331,460	$	2,382,746	201.0	%

	Interest Rate Swaps as of March 31, 2021
	Company Receives	Company Pays	Maturity Date	Notional Amount		Fair Market Value			Upfront (Payments) / Receipts		Change in Unrealized Gains / (Losses)
Interest rate swap ^(a)	L	1.47%	7/30/2021	$	11,700	$	(53	)	$	—	$	36
Interest rate swap ^(a)	4.50%	L + 2.37%	8/1/2022		115,000		2,883			—		(597	)
Interest rate swap ^(a)	4.50%	L + 1.59%	8/1/2022		50,000		1,784			—		(357	)
Interest rate swap ^(a)	4.50%	L + 1.60%	8/1/2022		7,500		266			—		(54	)
Interest rate swap ^(a)	L + 2.11%	4.50%	8/1/2022		27,531		(788	)		1,252		161
Interest rate swap ^(a)	L + 2.11%	4.50%	8/1/2022		2,160		(62	)		96		12
Interest rate swap ^(a)	4.50%	L + 1.99%	1/22/2023		150,000		6,019			—		(1,036	)
Interest rate swap ^(a)	L	0.33%	6/9/2023		5,000		(2	)		—		13
Interest rate swap ^(a)(d)	L + 2.28%	3.875%	11/1/2024		2,500		—			128		—
Total					371,391		10,047			1,476		(1,822	)

Interest rate swap ^(a)(b)(c)	3.875%	L + 2.25%	11/1/2024		300,000		9,883			—		(4,833	)
Interest rate swap ^(a)(b)(c)	3.875%	L + 2.46%	11/1/2024		50,000		1,273			—		(780	)
Interest rate swap ^(a)(b)	2.50%	L + 1.91%	8/1/2026		300,000		(9,004	)		—		(9,004	)
Total					650,000		2,152			—		(14,617	)
Cash collateral					—		(11,154	)		—		—
Total derivatives				$	1,021,391	$	1,045		$	1,476	$	(16,439	)

(a)

Contains a variable rate structure. Bears interest at a rate determined by three-month LIBOR.

(b)

Instrument is used in a hedge accounting relationship. The associated change in fair value is recorded along with the change in fair value of the hedged item within interest expense.

(c)

$2.5 million in aggregate notional value of these instruments is no longer designated as instruments in a hedge accounting relationship. The associated change in fair value of the de-designated portion is recorded within unrealized gain/(loss).

(d)

The fair market value of this instrument is presented net with the $2.5 million in aggregate notional value of instruments no longer designated as instruments in a hedge accounting relationship.

(1)	Certain portfolio company investments are subject to contractual restrictions on sales.

(2)	The amortized cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method.

(3)

Investment contains a variable rate structure, subject to an interest rate floor. Variable rate investments bear interest at a rate that may be determined by reference to either London Interbank Offered Rate (“LIBOR” or “L”) (which can include one-, two-, three- or six-month LIBOR), Euro Interbank Offer Rate (“Euribor” or “E”) (which can include one-, two-, three- or six-month Euribor), Canadian Dollar Offered Rate (“CDOR” or “C”), Bank Bill Swap Bid Rate (“BBSY” or “B”) or an alternate base rate (which can include the Federal Funds Effective Rate or the Prime Rate or “P”), at the borrower’s option, which reset periodically based on the terms of the credit agreement. For investments with multiple interest rate contracts, the interest rate shown is the weighted average interest rate in effect at March 31, 2021.

(4)

This portfolio company is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940, as amended (the “1940 Act”). Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of total assets. Non-qualifying assets represented 12.1% of total assets as of March 31, 2021.

(5)

In addition to the interest earned based on the stated interest rate of this investment, which is the amount reflected in this schedule, the Company may be entitled to receive additional interest as a result of an arrangement with other members in the syndicate to the extent an investment has been allocated to “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any amounts due thereunder and the Company holds the “last out” tranche.

(6)

Under the 1940 Act, the Company is deemed to be an “Affiliated Person” of, as defined in the 1940 Act, this portfolio company, as the Company owns more than 5% of the portfolio company’s outstanding voting securities. Transactions during the three months ended March 31, 2021 in which the Company was an Affiliated Person of the portfolio company are as follows:

Non-controlled, Affiliated Investments during the three months ended March 31, 2021

Company

Fair

Value at

December 31,

2020

Gross

Additions (a)

Gross

Reductions (b)

Net Change

In Unrealized

Gain/(Loss)

Realized

Gain/(Loss)(d)

Transfers

Fair

Value at

March 31,

2021

Dividend

Income

Interest

Income

MD America Energy,

LLC ^(c)

12,892

—

(57

)

2,082

—

14,917

545

211

Total

12,892

—

(57

)

2,082

—

14,917

545

211

(a)

Gross additions include increases in the cost basis of investments resulting from new investments, payment-in-kind interest or dividends, the amortization of any unearned income or discounts on debt investments, as applicable.

(b)

Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, and the amortization of any premiums on debt investments, as applicable. When an investment is placed on non-accrual status, any cash flows received by the Company may be applied to the outstanding principal balance.

(c)

Includes investment in SMPA Holdings, LLC of 15,000 common equity units.

(d)

In the consolidated statement of operations there is a realized loss on non-controlled, affiliated investments of $33 related to an escrow receivable for an investment that is no longer held.

(7)

Under the 1940 Act, the Company is deemed to be both an “Affiliated Person” of and “Control,” as such terms are defined in the 1940 Act, this portfolio company, as the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). Transactions during the three months ended March 31, 2021 in which the Company was an Affiliated Person of and was deemed to Control a portfolio company are as follows:

Controlled, Affiliated Investments during the three months ended March 31, 2021

Company	Fair Value at December 31, 2020		Gross Additions (a)		Gross Reductions (b)		Net Change In Unrealized Gain/(Loss)			Realized Gain/(Loss)		Transfers		Fair Value at March 31, 2021		Other Income		Interest Income
IRGSE Holding Corp.	$	36,676	$	1,319	$	—	$	(1	)	$	—	$	—	$	37,994	$	1	$	936
Mississippi Resources, LLC	—		—		—		—			—		—		—		—		—
Total	$	36,676	$	1,319	$	—	$	(1	)	$	—	$	—	$	37,994	$	1	$	936

(a)

(b)

(8)	As of March 31, 2021, the estimated cost basis of investments for U.S. federal tax purposes was $2,350,588, resulting in estimated gross unrealized gains and losses of $145,735 and $104,585, respectively.

(9)	These investments contain a fixed rate structure. The Company entered into an interest rate swap agreement to swap to a floating rate. Refer to Note 5 for further information related to the Company’s interest rate swaps on investments.

(10)

In accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value Measurements (“ASC Topic 820”), unless otherwise indicated, the fair values of all investments were determined using significant unobservable inputs and are considered Level 3 investments. See Note 6 for further information related to investments at fair value.

(11)	This investment is valued using observable inputs and is considered a Level 2 investment. See Note 6 for further information related to investments at fair value.

(12)	This investment is valued using observable inputs and is considered a Level 1 investment. See Note 6 for further information related to investments at fair value.

(13)	This equity investment is non-income producing.

(14)

All or a portion of this security was acquired in a transaction exempt from registration under the Securities Act of 1933, and may be deemed to be “restricted securities” under the Securities Act. As of March 31, 2021, the aggregate fair value of these securities is $44,075, or 3.7% of the Company’s net assets.

(15)	Ownership of equity investments may occur through a holding company or partnership.

(16)	Investment is on non-accrual status as of March 31, 2021.

The accompanying notes are an integral part of these consolidated financial statements.

Sixth Street Specialty Lending, Inc.

Consolidated Schedule of Investments as of December 31, 2020

(Amounts in thousands, except share amounts)

Company ⁽¹⁾	Investment	Initial Acquisition Date	Reference Rate and Spread			Interest Rate			Amortized Cost ⁽²⁾⁽⁸⁾		Fair Value ⁽¹⁰⁾		Percentage of Net Assets
Debt Investments
Business services
Acceo Solutions, Inc.^(3)(4)(5)	First-lien loan (CAD 74,813 par, due 10/2025)	7/6/2018		C + 5.25	%		6.25	%	$	56,132	$59,603 (CAD 75,935)			5.1	%
Alpha Midco, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($64,317 par, due 8/2025)	8/15/2019		L + 7.50	%		8.50	%		62,934		64,837		5.6	%
ForeScout Technologies, Inc. ⁽³⁾	First-lien loan ($4,662 par, due 8/2026)	8/17/2020		L + 9.50	%	10.50% (incl. 9.50% PIK)				4,543		4,623		0.4	%
Integration Appliance, Inc.⁽³⁾	First-lien loan ($71,500 par, due 8/2023)	8/13/2018		L + 7.25	%		8.25	%		70,857		72,215		6.2	%
	First-lien revolving loan ($1,310 par, due 8/2023)	8/13/2018		L + 7.25	%		8.25	%		1,289		1,336		0.1	%
Motus, LLC ⁽³⁾⁽⁵⁾	First-lien loan ($61,800 par, due 1/2024)	1/17/2018		L + 5.50	%		6.50	%		60,902		62,418		5.4	%
Netwrix Corp.⁽³⁾⁽⁵⁾	First-lien loan ($50,792 par, due 9/2026)	9/30/2020		L + 6.50	%		7.50	%		49,381		49,391		4.3	%
Nintex Global, Ltd.⁽³⁾⁽⁵⁾	First-lien loan ($79,695 par, due 4/2024)	3/30/2018		L + 6.75	%		7.75	%		78,370		81,912		7.1	%
ReliaQuest Holdings, LLC⁽³⁾⁽⁵⁾	First-lien loan ($36,511 par, due 10/2026)	10/8/2020		L + 8.25	%		9.25	%		35,450		35,653		3.1	%
ServiceChannel Holdings, Inc.⁽⁹⁾	Second-lien loan ($5,359 par, due 6/2025)	6/3/2020		12.00	%	12.00% PIK				4,992		5,037		0.4	%
Sprinklr, Inc.	Convertible note ($3,920 par, due 5/2025)	5/20/2020		9.88	%	9.88% PIK				3,890		4,478		0.4	%
WideOrbit, Inc.⁽³⁾	First-lien loan ($59,943 par, due 7/2025)	7/8/2020		L + 8.50	%		9.75	%		59,044		61,075		5.3	%
										487,784		502,578		43.4	%
Communications
IntelePeer Holdings, Inc.	First-lien loan ($43,324 par, due 12/2024)⁽³⁾	12/2/2019		L + 8.25	%		9.75	%		43,220		42,999		3.7	%
	Convertible note ($1,750 par, due 12/2024)	2/28/2020		8.00	%	8.00% PIK				1,731		1,658		0.1	%
										44,951		44,657		3.8	%
Education
EMS Linq, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($34,913 par, due 9/2025)	9/17/2020		L + 7.75	%		8.75	%		33,903		34,476		3.0	%
Follet Corp. ⁽³⁾	First-lien loan ($75,000 par, due 11/2025)	11/25/2020		L + 7.75	%		8.75	%		73,341		73,500		6.3	%
Frontline Technologies Group, LLC ⁽³⁾	First-lien loan ($84,835 par, due 9/2023)	9/18/2017		L + 5.75	%		6.75	%		84,479		84,835		7.3	%
Illuminate Education, Inc.⁽³⁾⁽⁵⁾	First-lien loan ($63,375 par, due 8/2022)	8/25/2017		L + 6.25	%		7.25	%		62,864		63,375		5.5	%
										254,587		256,186		22.1	%
Financial services
AvidXchange, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($10,831 par, due 4/2024)	10/1/2019		L + 9.00	%		10.00	%		10,717		10,902		0.9	%
Bear OpCo, LLC ⁽³⁾⁽⁵⁾	First-lien loan ($19,775 par, due 10/2024)	10/10/2019		L + 6.50	%		7.50	%		19,341		19,627		1.7	%
BlueSnap, Inc. ⁽³⁾	First-lien loan ($35,000 par, due 10/2024)	10/25/2019		L + 7.00	%		8.00	%		34,441		35,262		3.0	%
	First-lien revolving loan ($2,500 par, due 10/2024)	10/25/2019		P + 6.00	%		9.25	%		2,462		2,519		0.2	%
Factor Systems, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($29,775 par, due 1/2025)	1/17/2020		L + 7.00	%		8.50	%		29,232		30,966		2.7	%

G Treasury SS, LLC ⁽³⁾⁽⁵⁾	First-lien loan ($30,934 par, due 4/2023)	4/9/2018	L + 8.25	%		9.25	%	30,674		31,398	2.7	%
GC Agile Holdings, Ltd. ⁽³⁾⁽⁴⁾	First-lien loan ($39,323 par, due 6/2025)	1/31/2019	L + 7.00	%		8.25	%	38,814		39,618	3.4	%
InvMetrics Holdings, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($53,200 par, due 12/2025)	12/30/2020	L + 6.25	%		7.25	%	51,824		51,823	4.5	%
Kyriba Corp.⁽³⁾	First-lien loan ($13,921 par, due 4/2025)	4/9/2019	L + 9.00	%	10.50% (incl. 9.00% PIK)			13,644		14,387	1.2	%
	First-lien loan (EUR 8,288 par, due 4/2025)	4/9/2019	E + 9.00	%	9.00% PIK			9,120	10,420 (EUR 8,516)		0.9	%
	First-lien revolving loan ($1,411 par, due 4/2025)	4/9/2019	L + 7.25	%		8.75	%	1,379		1,451	0.1	%
	First-lien revolving loan (EUR 336 par, due 4/2025)	4/9/2019	E + 7.25	%		7.25	%	368	422 (EUR 345)		0.0	%
PayLease, LLC ⁽³⁾	First-lien loan ($63,671 par, due 7/2022)	7/28/2017	L + 7.25	%		8.25	%	63,183		64,467	5.6	%
	First-lien revolving loan ($3,333 par, due 7/2022)	7/28/2017	L + 7.25	%		8.25	%	3,312		3,375	0.3	%
PrimeRevenue, Inc. ⁽³⁾	First-lien loan ($22,207 par, due 12/2023)	12/31/2018	L + 9.50	%		11.00	%	22,001		22,932	2.0	%
								330,512		339,569	29.2	%
Healthcare
BCTO Ace Purchaser, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($40,000 par, due 11/2026)	11/23/2020	L + 6.50	%		7.50	%	38,863		39,300	3.4	%
Caris Life Sciences, Inc.	First-lien loan ($5,000 par, due 9/2023)	9/21/2018	11.30	%		11.30	%	4,888		5,387	0.5	%
	First-lien loan ($3,750 par, due 4/2025)	4/2/2020	11.30	%		11.30	%	3,500		4,125	0.3	%
	Convertible note ($2,602 par, due 9/2023)	9/21/2018	8.00	%		8.00	%	2,602		4,846	0.4	%
Clinicient, Inc.⁽³⁾	First-lien loan ($15,000 par, due 5/2024)	5/31/2019	L + 7.00	%		8.50	%	14,891		15,150	1.3	%
	First-lien revolving loan ($2,400 par, due 5/2024)	5/31/2019	L + 7.00	%		8.50	%	2,373		2,440	0.2	%
Integrated Practice Solutions, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($49,375 par, due 10/2024)	6/30/2017	L + 7.50	%		8.50	%	47,920		50,733	4.4	%
Quantros, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($17,781 par, due 1/2021)	2/29/2016	L + 8.50	%		9.50	%	17,773		16,892	1.5	%
Valant Medical Solutions, Inc. ⁽³⁾	First-lien loan ($28,536 par, due 4/2024)	4/8/2019	L + 8.75	%		10.25	%	27,909		28,841	2.5	%
	First-lien revolving loan ($1,500 par, due 4/2024)	4/8/2019	L + 8.75	%		10.25	%	1,474		1,520	0.1	%
Vita Bidco, Inc.⁽³⁾⁽⁵⁾	First-lien loan ($9,058 par, due 2/2024)	2/11/2019	L + 6.50	%		7.50	%	8,883		9,126	0.8	%
								171,076		178,360	15.4	%
Hotel, gaming, and leisure
IRGSE Holding Corp. ⁽³⁾⁽⁷⁾	First-lien loan ($29,881 par, due 9/2021)	9/29/2015	L + 9.50	%	10.00% (incl. 5.00% PIK)			28,215		28,611	2.5	%
	First-lien revolving loan ($7,054 par, due 9/2021)	9/29/2015	L + 9.50	%	10.00% (incl. 5.00% PIK)			7,054		6,750	0.6	%
								35,269		35,361	3.1	%
Human resource support services
Absorb Software, Inc. ^(3)(4)(5)	First-lien loan ($34,487 par, due 5/2024)	7/31/2019	L + 6.50	%		7.50	%	33,920		34,746	3.0	%
ClearCompany, LLC ⁽³⁾	First-lien loan ($20,055 par, due 7/2023)	7/23/2018	L + 8.75	%	10.25% (incl. 2.50% PIK)			19,909		20,206	1.7	%
DaySmart Holdings, LLC ⁽³⁾⁽⁵⁾	First-lien loan ($36,318 par, due 10/2025)	12/18/2020	L + 7.25	%		8.75	%	36,348		36,199	3.1	%
	First-lien revolving loan ($3,000 par, due 10/2025)	12/18/2020	L + 7.25	%		8.75	%	3,004		2,992	0.3	%
PageUp People, Ltd. ⁽³⁾⁽⁴⁾	First-lien loan (AUD 51,474 par, due 12/2022)	1/11/2018	B + 7.25	%	8.50% (incl. 1.25% PIK)			39,531	39,938 (AUD 51,757)		3.4	%

PayScale Holdings, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($39,700 par, due 5/2024)	5/3/2019	L + 7.00	%		8.00	%	38,916	39,937	3.4	%
Modern Hire, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($30,113 par, due 5/2024)	5/15/2019	L + 7.00	%		8.50	%	29,514	30,338	2.6	%
Workwell Acquisition Co. ⁽³⁾⁽⁵⁾	First-lien loan ($19,950 par, due 10/2025)	10/19/2020	L + 7.50	%		8.50	%	19,218	19,725	1.7	%
								220,360	224,081	19.2	%
Insurance
Riskonnect, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($50,767 par, due 10/2023)	6/30/2017	L + 7.00	%		8.25	%	50,380	51,402	4.4	%
Internet services
Higher Logic, LLC⁽³⁾⁽⁵⁾	First-lien loan ($50,000 par, due 1/2024)	6/18/2018	L + 7.25	%		8.25	%	49,521	50,125	4.3	%
Lithium Technologies, LLC ⁽³⁾	First-lien loan ($54,700 par, due 10/2022)	10/3/2017	L + 8.00	%		9.00	%	54,192	53,606	4.6	%
	First-lien revolving loan ($1,320 par, due 10/2022)	10/3/2017	L + 8.00	%		9.00	%	1,302	1,254	0.1	%
Lucidworks, Inc. ⁽⁹⁾	First-lien loan ($12,902 par, due 7/2024)	7/31/2019	12.00	%	12.00% (incl. 7.00% PIK)			12,791	13,145	1.1	%
								117,806	118,130	10.1	%
Marketing Services
Acoustic, L.P.⁽³⁾	First-lien note ($33,000 par, due 6/2024)	12/17/2019	L + 7.00	%		8.50	%	32,376	32,010	2.8	%
Office products
USR Parent, Inc.⁽³⁾⁽⁵⁾	ABL FILO term loan ($7,732 par, due 9/2022)	9/12/2017	L + 7.75	%		8.75	%	7,660	7,809	0.7	%
Oil, gas and consumable fuels
MD America Energy, LLC ⁽³⁾⁽⁶⁾	First-lien loan ($9,000 par, due 12/2024)	11/14/2018	L + 7.75	%		9.25	%	9,000	9,000	0.8	%
Mississippi Resources, LLC ^(3)(7)(16)	First-lien loan ($1,500 par, due 12/2021)	6/29/2018	P + 8.00	%		12.00	%	1,498	—	0.0	%
Verdad Resources Intermediate Holdings, LLC ⁽³⁾	First-lien loan ($25,233 par, due 10/2024)	4/10/2019	L + 7.50	%		9.50	%	24,721	25,437	2.2	%
								35,219	34,437	3.0	%
Other
Lexipol, LLC ⁽³⁾⁽⁵⁾	First-lien loan ($19,762 par, due 10/2025)	10/8/2020	L + 5.75	%		6.75	%	19,427	19,762	1.7	%
Pharmaceuticals
Biohaven Pharmaceuticals, Inc.⁽³⁾⁽⁴⁾	First-lien loan ($27,948 par, due 8/2025)	8/7/2020	L + 9.00	%	10.00% (incl. 4.00% PIK)			26,796	27,569	2.4	%
TherapeuticsMD, Inc. ⁽³⁾⁽⁴⁾	First-lien loan ($37,500 par, due 3/2024)	4/24/2019	L + 7.75	%		10.45	%	35,887	36,469	3.1	%
								62,683	64,038	5.5	%
Real Estate
ResMan, LLC ⁽³⁾	First-lien loan ($39,886 par, due 10/2024)	10/3/2019	L + 9.50	%		10.50	%	39,686	39,763	3.4	%
Retail and consumer products
99 Cents Only Stores LLC ⁽³⁾	ABL FILO term loan ($25,000 par, due 5/2025)	9/6/2017	L + 8.50	%		9.50	%	24,640	25,625	2.2	%
American Achievement, Corp. ^(3)(5)(16)	First-lien loan ($23,876 par, due 9/2022)	9/30/2015	L + 8.25	%		9.25	%	23,822	21,608	1.9	%
Designer Brands, Inc.⁽³⁾⁽⁴⁾	ABL First-lien loan ($49,375 par, due 8/2025)	8/7/2020	L + 8.50	%		9.75	%	48,218	49,252	4.2	%
J.C. Penney Company, Inc. ^(11)(13)	ABL DIP term loan ($12,198 par, due 4/2021)	6/8/2020	—			—		12,198	13,336	1.1	%
	First-lien loan ($4,129 par, due 6/2023)	6/5/2019	—			—		3,153	275	0.0	%
	First-lien secured note ($12,384 par, due 7/2023)	6/5/2019	—			—		10,122	867	0.1	%
Maurices, Inc. ⁽³⁾⁽⁵⁾	ABL FILO term loan ($20,667 par, due 5/2024)	5/6/2019	L + 6.50	%		7.75	%	20,212	21,132	1.8	%
Moran Foods, LLC ⁽³⁾	ABL FILO term loan ($30,000 par, due 4/2024)	4/1/2020	L + 7.50	%		9.00	%	29,498	30,600	2.6	%

	ABL FILO term loan ($7,500 par, due 4/2024)	4/1/2020	P + 6.50	%	9.75	%	7,374	7,650	0.7	%
NMG Holding Company, Inc. ^(3)(11)	First-lien term loan ($16,961 par, due 9/2025)	9/25/2020	L + 12.00	%	13.00	%	13,254	17,994	1.6	%
Penney Borrower, LLC ⁽³⁾	ABL FILO term loan ($72,000 par, due 12/2025)	12/7/2020	L + 8.50	%	9.25	%	70,220	70,560	6.1	%
	First-lien term loan ($6,912 par, due 12/2026)(11)	12/7/2020	L + 8.50	%	9.50	%	5,827	5,887	0.5	%
							268,538	264,786	22.8	%
Total Debt Investments							2,178,314	2,212,929	190.6	%

Equity and Other Investments
Business Services
Motus, LLC ⁽¹³⁾	Class A Units (1,262 units)	1/17/2018					1,262	3,318	0.3	%
	Class B Units (517,020 units)	1/17/2018					—	—	0.0	%
Nintex Global, Ltd. ⁽¹³⁾	Class A Shares (1,197 shares)	3/30/2018					1,197	3,286	0.3	%
	Class B Shares (398,557 shares)	3/30/2018					12	33	0.0	%
ServiceChannel Holdings, Inc. ^(13)(14)	207,991 Warrants	6/3/2020					335	335	0.0	%
WideOrbit, Inc. ^(13)(14)	1,567,807 Warrants	7/8/2020					327	327	0.0	%
							3,133	7,299	0.6	%
Communications
IntelePeer Holdings, Inc. ^(13)(14)	280,000 Warrants	2/28/2020					183	183	0.0	%
Education
EMS Linq, Inc. ^(13)(14)	Common Units (474,684 units)	11/2/2020					1,500	1,500	0.1	%
Financial services
AvidXchange, Inc.	Common Shares (2,198 shares)^(13)(14)	4/7/2020					108	108	0.0	%
	Preferred Shares (293,232 shares)	10/1/2019					15,763	15,802	1.4	%
	Series F Preferred Shares (8,791 shares)^(13)(14)	4/7/2020					431	431	0.0	%
	75,016 Warrants ⁽¹³⁾	10/1/2019					475	1,254	0.1	%
Newport Parent Holdings, LP ^(13)(14)	Class A-2 Units (131,569 units)	12/10/2020					4,177	4,177	0.4	%
Oxford Square Capital Corp. ^(4)(12)	Common Shares (1,059 shares)	8/5/2015					7	3	0.0	%
							20,961	21,775	1.9	%
Healthcare
Caris Life Sciences, Inc. ⁽¹³⁾	Series C Preferred Shares (362,319 shares)⁽¹⁴⁾	10/13/2020					1,000	1,000	0.1	%
	633,376 Warrants	9/21/2018					192	704	0.1	%
	569,991 Warrants ⁽¹⁴⁾	4/2/2020					250	472	0.0	%
Quantros, Inc. ⁽¹³⁾	363 AA Preferred Stock Warrants	10/7/2019					139	—	0.0	%
	2,748 A Preferred Stock Warrants	10/7/2019					—	—	0.0	%
	4,681,958 Common Stock Warrants	10/7/2019					—	—	0.0	%
Valant Medical Solutions, Inc. ^(13)(15)	954,478 Warrants	4/8/2019					281	239	0.0	%
Vita Topco, Inc. ^(13)(15)	Common Shares (1,000 shares)	2/11/2019					1,000	8,973	0.8	%
							2,862	11,388	1.0	%
Hotel, gaming, and leisure
IRGSE Holding Corp. ^(7)(13)	Class A Units (33,790,171 units)⁽¹⁴⁾	12/21/2018					21,842	1,267	0.1	%

	Class C-1 Units (8,800,000 units)	12/21/2018						100		48	0.0	%
								21,942		1,315	0.1	%
Human resource support services
ClearCompany, LLC ^(13)(15)	Series A Preferred Units (1,429,228 units)	8/24/2018						2,014		3,031	0.3	%
DaySmart Holdings, LLC ^(13)(14)(15)	Class A Units (155,240 units)	10/1/2019						1,234		1,413	0.1	%
								3,248		4,444	0.4	%
Insurance
Riskonnect, Inc. ⁽¹³⁾	Common Shares Class A (1,020 units)	6/30/2017						1,020		2,208	0.2	%
	Common Shares Class B (987,929 units)	6/30/2017						10		22	0.0	%
								1,030		2,230	0.2	%
Internet Services
Lucidworks, Inc. ⁽¹³⁾	Series F Preferred Shares (199,054 shares)	8/2/2019						800		874	0.1	%
Marketing services
Validity, Inc. ⁽¹³⁾	Series A Preferred Shares (3,840,000 shares)	5/31/2018						3,840		13,056	1.1	%
Oil, gas and consumable fuels
SMPA Holdings LLC ^(6)(13)(14)	Common Units (15,000 units)	12/24/2020						3,892		3,892	0.3	%
Pharmaceuticals
TherapeuticsMD, Inc. ^(13)(14)	712,817 Warrants	8/5/2020						1,029		584	0.1	%
Retail and consumer products
Copper Bidco LLC ^(11)(13)(14)	Trust Certificates (132,928 Certificates)	12/7/2020						930		930	0.1	%
NMG Parent LLC Com Unit ^(13)(14)	Common Units (110,210 units)	9/29/2020						6,613		6,613	0.6	%
								7,543		7,543	0.7	%

Other Investments
Bain Capital Credit CLO Ltd, Series 2018-1A ^(3)(4)(11)	Structured Product ($500 par, due 4/2031)	10/15/2020	L + 5.35	%	5.56	%		411		443	0.0	%
Carlyle Global Market Strategies CLO Ltd, Series 2018-1A ^(3)(4)(11)	Structured Product ($1,550 par, due 4/2031)	8/11/2020	L + 5.75	%	5.97	%		1,203		1,414	0.1	%
Carlyle Global Market Strategies CLO Ltd, Series 2017-4A ^(3)(4)(11)	Structured Product ($4,150 par, due 1/2030)	9/3/2020	L + 6.15	%	6.39	%		3,400		3,821	0.3	%
Madison Park Funding Ltd, Series 2014-14A ^(3)(4)(11)	Structured Product ($2,400 par, due 10/2030)	8/11/2020	L + 5.80	%	6.02	%		1,983		2,276	0.2	%
OZLM Ltd., Series 2018-18A ^(3)(4)(11)	Structured Product ($2,000 par, due 4/2031)	5/28/2020	L + 2.85	%	3.09	%		1,754		1,904	0.2	%
								8,751		9,858	0.8	%
Total Equity and Other Investments								80,714		85,941	7.4	%
Total Investments							$	2,259,028	$	2,298,870	198.0	%

	Interest Rate Swaps as of December 31, 2020
	Company Receives	Company Pays	Maturity Date	Notional Amount		Fair Market Value			Upfront (Payments) / Receipts		Change in Unrealized Gains / (Losses)
Interest rate swap ^(a)	L	1.47%	7/30/2021	$	11,700	$	(89	)	$	—	$	(127	)
Interest rate swap ^(a)	4.50%	L + 2.37%	8/1/2022		115,000		3,480			—		2,258
Interest rate swap ^(a)	4.50%	L + 1.59%	8/1/2022		50,000		2,141			—		607
Interest rate swap ^(a)	4.50%	L + 1.60%	8/1/2022		7,500		320			—		92
Interest rate swap ^(a)	L + 2.11%	4.50%	8/1/2022		27,531		(949	)		1,252		303
Interest rate swap ^(a)	L + 2.11%	4.50%	8/1/2022		2,160		(74	)		96		22
Interest rate swap ^(a)	4.50%	L + 1.99%	1/22/2023		150,000		7,055			—		3,493
Interest rate swap ^(a)	L	0.33%	6/9/2023		5,000		(15	)		—		(15	)
Interest rate swap ^(a)(e)	L + 2.28%	3.875%	11/1/2024		2,500		—			128		128
Interest rate swap^(a)(b)	L	1.97%	6/25/2020		—		—			—		75
Interest rate swap^(a)(b)	L	1.36%	7/29/2022		—		—			—		(24	)
Total					371,391		11,869			1,476		6,812

Interest rate swap ^(a)(c)(d)	3.875%	L + 2.25%	11/1/2024		300,000		14,716			—		16,503
Interest rate swap ^(a)(c)(d)	3.875%	L + 2.46%	11/1/2024		50,000		2,053			—		2,053
Total					350,000		16,769			—		18,556
Cash collateral					—		(26,431	)		—		—
Total derivatives				$	721,391	$	2,207		$	1,476	$	25,368

(a)

Contains a variable rate structure. Bears interest at a rate determined by three-month LIBOR.

(b)

Interest rate swap was terminated or matured during the period.

(c)

Instrument is used in a hedge accounting relationship. The associated change in fair value is recorded along with the change in fair value of the hedged item within interest expense.

(d)

(e)

The fair market value of this instrument is presented net with the $2.5 million in aggregate notional value of instruments no longer designated as instruments in a hedge accounting relationship.

(1)	Certain portfolio company investments are subject to contractual restrictions on sales.

(2)	The amortized cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method.

(3)

Investment contains a variable rate structure, subject to an interest rate floor. Variable rate investments bear interest at a rate that may be determined by reference to either London Interbank Offered Rate (“LIBOR” or “L”) (which can include one-, two-, three- or six-month LIBOR), Euro Interbank Offer Rate (“Euribor” or “E”) (which can include one-, two-, three-, or six-month Euribor), Canadian Dollar Offered Rate (“CDOR” or “C”), Bank Bill Swap Bid Rate (“BBSY” or “B”) or an alternate base rate (which can include the Federal Funds Effective Rate or the Prime Rate or “P”), at the borrower’s option, which reset periodically based on the terms of the credit agreement. For investments with multiple interest rate contracts, the interest rate shown is the weighted average interest rate in effect at December 31, 2020.

(4)

(5)

(6)

Under the 1940 Act, the Company is deemed to be an “Affiliated Person” of, as defined in the 1940 Act, this portfolio company, as the Company owns more than 5% of the portfolio company’s outstanding voting securities. Transactions during the year ended December 31, 2020 in which the Company was an Affiliated Person of the portfolio company are as follows:

Non-controlled, Affiliated Investments during the year ended December 31, 2020

Company	Fair Value at December 31, 2019		Gross Additions (a)		Gross Reductions (b)			Net Change In Unrealized Gain/(Loss)			Realized Gain/(Losses)			Transfers		Fair Value at December 31, 2020		Other Income		Interest Income
AFS Technologies, Inc.	$	50,136	$	555	$	(61,819	)	$	(691	)	$	11,819		$	—	$	—	$	59	$	4,554
MD America Energy, LLC ^(c)	—			12		(1,094	)		3,476			(3,965	)		14,463		12,892		309		52
Total	$	50,136	$	567	$	(62,913	)	$	2,785		$	7,854		$	14,463	$	12,892	$	368	$	4,606

(a)

(b)

(c)

Includes investment in SMPA Holdings, LLC of 15,000 common equity units.

(7)

Under the 1940 Act, the Company is deemed to be both an “Affiliated Person” of and “Control,” as such terms are defined in the 1940 Act, this portfolio company, as the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). Transactions during the year ended December 31, 2020 in which the Company was an Affiliated Person of and was deemed to Control a portfolio company are as follows:

Controlled, Affiliated Investments during the year ended December 31, 2020

Company	Fair Value at December 31, 2019		Gross Additions (a)		Gross Reductions (b)			Net Change In Unrealized Gain/(Loss)			Realized Gain/(Losses)			Transfers		Fair Value at December 31, 2020		Other Income		Interest Income
IRGSE Holding Corp.	$	34,812	$	6,464	$	—		$	(467	)	$	(4,133	)	$	—	$	36,676	$	4	$	3,809
Mississippi Resources, LLC		13,104	—			(214	)		19,329			(32,219	)	—		—		—		—
Total	$	47,916	$	6,464	$	(214	)	$	18,862		$	(36,352	)	$	—	$	36,676	$	4	$	3,809

(a)

(b)

(8)	As of December 31, 2020, the estimated cost basis of investments for U.S. federal tax purposes was $2,285,393, resulting in estimated gross unrealized gains and losses of $125,374 and $101,215, respectively.

(9)	These investments contain a fixed rate structure. The Company entered into an interest rate swap agreement to swap to a floating rate. Refer to Note 5 for further information related to the Company’s interest rate swaps on investments.

(10)

In accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value Measurements (“Topic ASC 820”), unless otherwise indicated, the fair values of all investments were determined using significant unobservable inputs and are considered Level 3 investments. See Note 6 for further information related to investments at fair value.

(11)	This investment is valued using observable inputs and is considered a Level 2 investment. See Note 6 for further information related to investments at fair value.

(12)	This investment is valued using observable inputs and is considered a Level 1 investment. See Note 6 for further information related to investments at fair value.

(13)	This equity investment is non-income producing.

(14)

All or a portion of this security was acquired in transaction exempt from registration under the Securities Act of 1933, and may be deemed to be “restricted securities” under the Securities Act. As of December 31, 2020, the aggregate fair value of these securities is $20,983, or 1.8% of the Company’s net assets.

(15)	Ownership of equity investments may occur through a holding company or partnership.

(16)	Investment is on non-accrual status as of December 31, 2020.

The accompanying notes are an integral part of these consolidated financial statements.

Sixth Street Specialty Lending, Inc.

Consolidated Statements of Changes in Net Assets

(Amounts in thousands, except share amounts)

(Unaudited)

	Common Stock				Treasury Stock
	Shares		Par Amount		Shares		Cost			Paid in Capital in Excess of Par			Distributable Earnings			Total Net Assets
Balance at December 31, 2020		67,684,209	$	680		296,044	$	(4,291	)	$	1,025,676		$	139,250		$	1,161,315
Cumulative effect adjustment for the adoption of ASU 2020-06 ⁽²⁾		—		—		—		—			(457	)		172			(285	)
Net increase in net assets resulting from operations:
Net investment income		—		—		—		—			—			32,310			32,310
Net change in unrealized gains on investments and foreign currency translation		—		—		—		—			—			9,755			9,755
Net realized gains on investments and foreign currency transactions		—		—		—		—			—			14,587			14,587
Increase in Net Assets Resulting from Capital Share Transactions:
Issuance of common stock, net of offering and underwriting costs		4,049,689		41		—		—			85,904			—			85,945
Dividends to stockholders:
Stock issued in connection with dividend reinvestment plan		236,100		2		—		—			4,707			—			4,709
Dividends declared from net investment income		—		—		—		—			—			(123,004	)		(123,004	)
Tax reclassification of stockholders' equity in accordance with GAAP ⁽¹⁾		—		—		—		—			(460	)		460			—
Balance at March 31, 2021		71,969,998	$	723		296,044	$	(4,291	)	$	1,115,370		$	73,530		$	1,185,332

	Common Stock					Treasury Stock
	Shares			Par Amount		Shares		Cost			Paid in Capital in Excess of Par			Distributable Earnings			Total Net Assets
Balance at December 31, 2019		66,524,591		$	666		89,080	$	(1,359	)	$	1,009,270		$	110,720		$	1,119,297
Net decrease in net assets resulting from operations:
Net investment income		—			—		—		—			—			33,662			33,662
Net change in unrealized losses on investments and foreign currency translation		—			—		—		—			—			(84,680	)		(84,680	)
Net realized losses on investments and foreign currency transactions		—			—		—		—			—			(2,081	)		(2,081	)
Decrease in Net Assets Resulting from Capital Share Transactions:
Purchases of treasury stock		(206,964	)		—		206,964		(2,932	)		—			—			(2,932	)
Dividends to stockholders:
Stock issued in connection with dividend reinvestment plan		252,144			3		—		—			4,825			—			4,828
Dividends declared from net investment income		—			—		—		—			—			(31,358	)		(31,358	)
Tax reclassification of stockholders' equity in accordance with GAAP ⁽¹⁾		—			—		—		—			(1,016	)		1,016			—
Balance at March 31, 2020		66,569,771		$	669		296,044	$	(4,291	)	$	1,013,079		$	27,279		$	1,036,736

(1)	The Company’s tax year end is March 31^st.

(2)	See Note 2 for further information related to the adoption of ASU 2020-06.

The accompanying notes are an integral part of these consolidated financial statements.

Sixth Street Specialty Lending, Inc.

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

	Three Months Ended			Three Months Ended
	March 31, 2021			March 31, 2020
Cash Flows from Operating Activities
Increase (decrease) in net assets resulting from operations	$	56,652		$	(53,099	)
Adjustments to reconcile increase (decrease) in net assets resulting from operations to net cash provided by (used) in operating activities:
Net change in unrealized (gains) losses on investments		(11,444	)		107,660
Net change in unrealized gains on foreign currency transactions		(133	)		(13,799	)
Net change in unrealized (gains) losses on interest rate swaps		1,822			(9,181	)
Net realized (gains) losses on investments		(14,586	)		2,022
Net realized losses on foreign currency transactions		6			9
Net amortization of discount on investments		(7,026	)		(6,834	)
Amortization of deferred financing costs		1,347			1,230
Amortization of discount on debt		148			110
Purchases and originations of investments, net		(170,432	)		(119,852	)
Proceeds from investments, net		33,751			1,014
Repayments on investments		87,984			218,075
Paid-in-kind interest		(2,125	)		(1,795	)
Changes in operating assets and liabilities:
Interest receivable		(2,260	)		3,314
Interest receivable paid-in-kind		(35	)		(15	)
Prepaid expenses and other assets		12,410			1,307
Management fees payable to affiliate		347			(69	)
Incentive fees payable to affiliate		5,074			(21	)
Payable to affiliate		339			709
Other liabilities		(17,688	)		23,481
Net Cash Provided by (Used) in Operating Activities		(25,849	)		154,266
Cash Flows from Financing Activities
Borrowings on debt		404,159			215,699
Repayments on debt		(423,092	)		(332,196	)
Deferred financing costs		(7,832	)		(4,113	)
Proceeds from issuance of common stock, net of offering and underwriting costs		85,945			—
Purchases of treasury stock		—			(2,932	)
Dividends paid to stockholders		(26,613	)		(25,102	)
Net Cash Provided by (Used) in Financing Activities		32,567			(148,644	)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash		6,718			5,622
Cash, cash equivalents, and restricted cash, beginning of period		13,274			14,143
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	19,992		$	19,765
Supplemental Information:
Interest paid during the period	$	6,441		$	11,795
Excise and other taxes paid during the period	$	4,200		$	3,900
Dividends declared during the period	$	123,004		$	31,358
Reinvestment of dividends during the period	$	4,709		$	4,828

The accompanying notes are an integral part of these consolidated financial statements.

Sixth Street Specialty Lending, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

(Amounts in thousands, unless otherwise indicated)

1. Organization and Basis of Presentation

Organization

Sixth Street Specialty Lending, Inc. (formerly known as TPG Specialty Lending, Inc.) (the “Company”) is a Delaware corporation formed on July 21, 2010. The Company was formed primarily to lend to, and selectively invest in, middle-market companies in the United States. The Company has elected to be regulated as a business development company (“BDC”) under the 1940 Act. In addition, for tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company is managed by Sixth Street Specialty Lending Advisers, LLC (formerly known as TSL Advisers, LLC) (the “Adviser”). On June 1, 2011, the Company formed a wholly-owned subsidiary, TC Lending, LLC, a Delaware limited liability company. On March 22, 2012, the Company formed a wholly-owned subsidiary, Sixth Street SL SPV, LLC (formerly known as TPG SL SPV, LLC), a Delaware limited liability company. On May 19, 2014, the Company formed a wholly-owned subsidiary, Sixth Street SL Holding, LLC (formerly known as TSL MR, LLC), a Delaware limited liability company. On December 9, 2020, the Company formed a wholly-owned subsidiary, Sixth Street Specialty Lending Sub, LLC, a Cayman Islands limited liability company.

On March 21, 2014, the Company completed its initial public offering (“IPO”) and the Company’s shares began trading on the New York Stock Exchange (“NYSE”) under the symbol “TSLX.”

Effective June 15, 2020, the Company changed its name from TPG Specialty Lending, Inc. to Sixth Street Specialty Lending, Inc.

Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and include the accounts of the Company and its subsidiaries. In the opinion of management, all adjustments considered necessary for the fair presentation of the consolidated financial statements for the periods presented have been included. The results of operations for interim periods are not indicative of results to be expected for the full year. All intercompany balances and transactions have been eliminated in consolidation.

Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with U.S. GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission (“SEC”), on February 17, 2021.

Certain prior period information has been reclassified to conform to the current period presentation. These reclassifications have no effect on the Company’s financial position or its results of operations as previously reported.

The Company is an investment company and, therefore, applies the specialized accounting and reporting guidance in Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies.

Fiscal Year End

The Company’s fiscal year ends on December 31.

2. Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual amounts could differ from those estimates and such differences could be material.

Cash and Cash Equivalents

Cash and cash equivalents may consist of demand deposits, highly liquid investments (e.g., money market funds, U.S. Treasury notes, and similar type instruments) with original maturities of three months or less, and restricted cash pledged as collateral. Cash and cash equivalents denominated in U.S. dollars are carried at cost, which approximates fair value. The Company deposits its cash and cash equivalents with highly-rated banking corporations and, at times, cash deposits may exceed the insured limits under applicable law.

Investments at Fair Value

Loan originations are recorded on the date of the binding commitment, which is generally the funding date. Investment transactions purchased through the secondary markets are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. The net change in unrealized gains or losses primarily reflects the change in investment values and also includes the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period.

Investments for which market quotations are readily available are typically valued at those market quotations. To validate market quotations, the Company utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available, as is the case for substantially all of our investments, are valued at fair value as determined in good faith by the Company’s Board of Directors (the “Board”), based on, among other things, the input of the Adviser, the Company’s Audit Committee and independent third-party valuation firms engaged at the direction of the Board.

As part of the valuation process, the Board takes into account relevant factors in determining the fair value of its investments, including and in combination of: the estimated enterprise value of a portfolio company (that is, the total value of the portfolio company’s net debt and equity), the nature and realizable value of any collateral, the portfolio company’s ability to make payments based on its earnings and cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to any similar publicly traded securities, and overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Board considers whether the pricing indicated by the external event corroborates its valuation.

The Board undertakes a multi-step valuation process, which includes, among other procedures, the following:

•

The valuation process begins with each investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with the portfolio management team.

•

The Adviser’s management reviews the preliminary valuations with the investment professionals. Agreed upon valuation recommendations are presented to the Audit Committee.

•

The Audit Committee reviews the valuations presented and recommends values for each investment to the Board.

•

The Board reviews the recommended valuations and determines the fair value of each investment; valuations that are not based on readily available market quotations are valued in good faith based on, among other things, the input of the Adviser, Audit Committee and, where applicable, other third parties including independent third-party valuation firms engaged at the direction of the Board.

The Company conducts this valuation process on a quarterly basis.

The Board has engaged independent third-party valuation firms to perform certain limited procedures that the Board has identified and requested them to perform in connection with the valuation process. At March 31, 2021, the independent third-party valuation firms performed their procedures over substantially all of the Company’s investments. Upon completion of such limited procedures, the third-party valuation firms concluded that the fair value, as determined by the Board, of those investments subjected to their limited procedures, appeared reasonable.

The Company applies Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value Measurement (“ASC Topic 820”), as amended, which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements. ASC Topic 820 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC Topic 820, the Company considers its principal market to be the market that has the greatest volume and level of activity. ASC Topic 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC Topic 820, these levels are summarized below:

•

Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

•

Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

•

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur. In addition to using the above inputs in investment valuations, the Company applies the valuation policy approved by its Board that is consistent with ASC Topic 820. Consistent with the valuation policy, the Company evaluates the source of inputs, including any markets in which its investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. When a security is valued based on prices provided by reputable dealers or pricing services (that is, broker quotes), the Company subjects those prices to various additional criteria in making the determination as to whether a particular investment would qualify for treatment as a Level 2 or Level 3 investment. For example, the Company reviews pricing provided by dealers or pricing services in order to determine if observable market information is being used, versus unobservable inputs. Some additional factors considered include the number of prices obtained as well as an assessment as to their quality, such as the depth of the relevant market relative to the size of the Company’s position.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material.

In addition, changes in the market environment, including the impact of changes in broader market indices and credit spreads, and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein.

Financial and Derivative Instruments

The Company recognizes all derivative instruments as assets or liabilities at fair value in its consolidated financial statements, pursuant to ASC Topic 815 Derivatives and Hedging, further clarified by the FASB’s issuance of the Accounting Standards Update (“ASU”) No. 2017-12, Derivatives and Hedging, which was adopted in 2019 by the Company. For all derivative instruments designated in a hedge accounting relationship, the entire change in the fair value of the hedging instrument shall be recorded in the same line item of the consolidated statements of operations as the hedged item. The Company uses certain interest rate swaps as derivative instruments to hedge the Company’s fixed rate debt, and therefore both the periodic payment and the change in fair value for the effective hedge, if applicable, will be recognized as components of interest expense in the consolidated statements of operations. For derivative contracts entered into by the Company that are not designated in a hedge accounting relationship the Company presents changes in the fair value through current period earnings.

In the normal course of business, the Company has commitments and risks resulting from its investment transactions, which may include those involving derivative instruments. Derivative instruments are measured in terms of the notional contract amount and derive their value based upon one or more underlying instruments. While the notional amount gives some indication of the Company’s derivative activity, it generally is not exchanged, but is only used as the basis on which interest and other payments are exchanged. Derivative instruments are subject to various risks similar to non-derivative instruments including market, credit, liquidity, and operational risks. The Company manages these risks on an aggregate basis as part of its risk management process.

Derivatives, including the Company’s interest rate swaps, for which broker quotes are available are typically valued at those broker quotes.

Offsetting Assets and Liabilities

Foreign currency forward contract and interest rate swap receivables or payables pending settlement are offset, and the net amount is included with receivable or payable for foreign currency forward contracts or interest rate swaps in the consolidated balance sheets when, and only when, they are with the same counterparty, the Company has the legal right to offset the recognized amounts, and it intends to either settle on a net basis or realize the asset and settle the liability simultaneously.

Foreign Currency

Foreign currency amounts are translated into U.S. dollars on the following basis:

•

cash and cash equivalents, market value of investments, outstanding debt on revolving credit facilities, other assets and liabilities: at the spot exchange rate on the last business day of the period; and

•

purchases and sales of investments, borrowings and repayments of such borrowings, income and expenses: at the rates of exchange prevailing on the respective dates of such transactions.

Although net assets and fair values are presented based on the applicable foreign exchange rates described above, the Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. The Company’s current approach to hedging the foreign currency exposure in its non-U.S. dollar denominated investments is primarily to borrow the par amount in local currency under the Company’s Revolving Credit Facility to fund these investments. Fluctuations arising from the translation of foreign currency borrowings are included with the net change in unrealized gains (losses) on translation of assets and liabilities in foreign currencies on the consolidated statements of operations.

Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. dollar.

Equity Offering Expenses

The Company records expenses related to equity offerings as a reduction of capital upon completion of an offering of registered securities. The costs associated with renewals of the Company’s shelf registration statement are expensed as incurred.

Debt Issuance Costs

The Company records origination and other expenses related to its debt obligations as deferred financing costs, which are presented as a direct deduction from the carrying value of the related debt liability. These expenses are deferred and amortized using the effective interest method, or straight-line method, over the stated maturity of the debt obligation.

Interest and Dividend Income Recognition

Interest income is recorded on an accrual basis and includes the amortization of discounts and premiums. Discounts and premiums to par value on securities purchased or originated are amortized into interest income over the contractual life of the respective security using the effective interest method. The amortized cost of investments represents the original cost adjusted for the amortization of discounts and premiums, if any.

Unless providing services in connection with an investment, such as syndication, structuring or diligence, all or a portion of any loan fees received by the Company will be deferred and amortized over the investment’s life using the effective interest method.

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when management has reasonable doubt that the borrower will pay principal or interest in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest has been paid and, in management’s judgment, the borrower is likely to make principal and interest payments in the future. Management may determine to not place a loan on non-accrual status if, notwithstanding any failure to pay, the loan has sufficient collateral value and is in the process of collection.

Dividend income on preferred equity securities is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly-traded portfolio companies.

Other Income

From time to time, the Company may receive fees for services provided to portfolio companies by the Adviser. The services that the Adviser provides vary by investment, but may include syndication, structuring, diligence fees, or other service-based fees, and fees for providing managerial assistance to our portfolio companies and are recognized as revenue when earned.

Earnings per share

The Company's earnings per share ("EPS") amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. Basic EPS is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average number of shares of common stock assuming all potential shares had been issued and the additional shares of common stock were dilutive. Diluted EPS reflects the potential dilution, using the if-converted method for convertible debt, which could occur if all potentially dilutive securities were exercised.

Reimbursement of Transaction-Related Expenses

The Company may receive reimbursement for certain transaction-related expenses in pursuing investments. Transaction-related expenses, which are expected to be reimbursed by third parties, are typically deferred until the transaction is consummated and are recorded in Prepaid expenses and other assets on the date incurred. The transaction-related costs of pursuing investments not otherwise reimbursed are borne by the Company and for successfully completed investments included as a component of the investment’s cost basis.

Cash advances received in respect of transaction-related expenses are recorded as Cash and cash equivalents with an offset to Other liabilities or Payables to affiliates. Other liabilities or Payables to affiliates are relieved as reimbursable expenses are incurred.

Income Taxes, Including Excise Taxes

The Company has elected to be treated as a RIC under Subchapter M of the Code, and the Company intends to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must, among other things, distribute to its stockholders in each taxable year generally at least 90% of its investment company taxable income, as defined by the Code, and net tax-exempt income for that taxable year. To maintain its RIC status, the Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which generally relieves the Company from corporate-level U.S. federal income taxes.

The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof.

Depending on the level of taxable income earned in a tax year, the Company can be expected to carry forward taxable income (including net capital gains, if any) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such taxable income, as required. To the extent that the Company determines that the estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, the Company accrues excise tax on estimated excess taxable income.

For the three months ended March 31, 2021 and 2020, we recorded a net expense of $0.5 million and $1.0 million, respectively, for U.S. federal excise tax and other taxes.

Dividends to Common Stockholders

Dividends to common stockholders are recorded on the record date. The amount to be paid out as a dividend is determined by the Board and is generally based upon the earnings estimated by the Adviser. Net realized long-term capital gains, if any, would generally be distributed at least annually, although the Company may decide to retain such capital gains.

The Company has adopted a dividend reinvestment plan that provides for reinvestment of any dividends declared in cash on behalf of stockholders, unless a stockholder elects to receive cash. As a result, if the Board authorizes, and it declares, a cash dividend, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash dividend. The Company expects to use newly issued shares to satisfy the dividend reinvestment plan.

Accounting Standards Adopted in 2021

In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-06 (“ASU 2020-06”) “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” This guidance reduces the number of accounting models for convertible instruments and makes targeted improvements to the disclosures for convertible instruments and earnings per share guidance. ASU 2020-06 is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2021 with early adoption permitted. The Company early adopted ASU 2020-06 under the modified retrospective basis during the period ended March 31, 2021. The impact of the Company’s adoption under the modified retrospective basis required a cumulative effect adjustment to opening net assets for the remaining unamortized discount on the 2022 Convertible Notes, and a requirement for the Company to calculate diluted earnings per share using the if-converted method which assumes full share settlement for the aggregate value of the 2022 Convertible Notes. The Company’s adoption of this guidance did not have a material impact on the Company’s financial position, results of operations, cash flows or notes to the consolidated financial statements.

New Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-04 (“ASU 2020-04”) “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” and in January 2021, the Financial Accounting Standards Board issued Accounting Standards Update 2021-01 (“ASU 2021-01”) “Reference Rate Reform (Topic 848): Scope.” This guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. ASU 2020-04 and ASU 2021-01 are effective for all entities as of March 12, 2020 through December 31, 2022. The Company expects that the adoption of this guidance will not have a material impact on the Company’s financial position, result of operations or cash flows.

3. Agreements and Related Party Transactions

Administration Agreement

On March 15, 2011, the Company entered into the Administration Agreement with the Adviser. Under the terms of the Administration Agreement, the Adviser provides administrative services to the Company. These services include providing office space, equipment and office services, maintaining financial records, preparing reports to stockholders and reports filed with the SEC, and managing the payment of expenses and the oversight of the performance of administrative and professional services rendered by others. Certain of these services are reimbursable to the Adviser under the terms of the Administration Agreement. In addition, the Adviser is permitted to delegate its duties under the Administration Agreement to affiliates or third parties and the Company pays or reimburses the Adviser for certain expenses incurred by any such affiliates or third parties for work done on its behalf.

In February 2017, the Board of Directors of the Company and the Adviser entered into an amended and restated administration agreement (the “Administration Agreement”) reflecting certain clarifications to the agreement to provide greater detail regarding the scope of the reimbursable costs and expenses of the Administrator’s services.

In November 2020, the Board renewed the Administration Agreement. Unless earlier terminated as described below, the Administration Agreement will remain in effect until November 2021, and may be extended subject to required approvals. The Administration Agreement may be terminated by either party without penalty on 60 days’ written notice to the other party.

No person who is an officer, director or employee of the Adviser or its affiliates and who serves as a director of the Company receives any compensation from the Company for his or her services as a director. However, the Company reimburses the Adviser (or its affiliates) for the allocable portion of the costs of compensation, benefits, and related administrative expenses of our officers who provide operational and administrative services to us pursuant to the Administration Agreement, their respective staffs and other professionals who provide services to us (including, in each case, employees of the Adviser or an affiliate). Such reimbursable amounts include the allocable portion of the compensation paid by the Adviser or its affiliates to the Company’s Chief Financial

Officer, Chief Compliance Officer, and other professionals who provide operational and administrative services to us pursuant to the Administration Agreement, including individuals who provide “back office” or “middle office” financial, operational, legal and/or compliance services to us. The Company reimburses the Adviser (or its affiliates) for the allocable portion of the compensation paid by the Adviser (or its affiliates) to such individuals based on the percentage of time those individuals devote, on an estimated basis, to the business and affairs of the Company and in acting on behalf of the Company. The Company may also reimburse the Adviser or its affiliates for the allocable portion of overhead expenses (including rent, office equipment and utilities) attributable thereto. Directors who are not affiliated with the Adviser receive compensation for their services and reimbursement of expenses incurred to attend meetings.

For the three months ended March 31, 2021 and 2020, the Company incurred expenses of $1.7 million and $1.0 million, respectively, for administrative services payable to the Adviser under the terms of the Administration Agreement.

Investment Advisory Agreement

On April 15, 2011, the Company entered into the Investment Advisory Agreement with the Adviser. The Investment Advisory Agreement was subsequently amended on December 12, 2011. Under the terms of the Investment Advisory Agreement, the Adviser provides investment advisory services to the Company. The Adviser’s services under the Investment Advisory Agreement are not exclusive, and the Adviser is free to furnish similar or other services to others so long as its services to the Company are not impaired. Under the terms of the Investment Advisory Agreement, the Company will pay the Adviser the Management Fee and may also pay certain Incentive Fees.

The Management Fee is calculated at an annual rate of 1.5% based on the average value of the Company’s gross assets calculated using the values at the end of the two most recently completed calendar quarters, adjusted for any share issuances or repurchases during the period. The Management Fee is payable quarterly in arrears.

For the three months ended March 31, 2021 and 2020, Management Fees were $8.7 million and $8.2 million, respectively.

The Adviser intends to waive a portion of the Management Fee payable under the Investment Advisory Agreement by reducing the Management Fee on assets financed using leverage over 200% asset coverage (in other words, over 1.0x debt to equity) (the “Leverage Waiver”). Pursuant to the Leverage Waiver, the Adviser intends to waive the portion of the Management Fee in excess of an annual rate of 1.0% (0.250% per quarter) on the average value of the Company’s gross assets as of the end of the two most recently completed calendar quarters that exceeds the product of (i) 200% and (ii) the average value of our net asset value at the end of the two most recently completed calendar quarters. Any waived Management Fees are not subject to recoupment by the Adviser. As of March 31, 2021, no Management Fees have been waived pursuant to the Leverage Waiver.

The Incentive Fee consists of two parts, as follows:

(i)

The first component, payable at the end of each quarter in arrears, equals 100% of the pre-Incentive Fee net investment income in excess of a 1.5% quarterly “hurdle rate,” the calculation of which is further explained below, until the Adviser has received 17.5% of the total pre-Incentive Fee net investment income for that quarter and, for pre-Incentive Fee net investment income in excess of 1.82% quarterly, 17.5% of all remaining pre-Incentive Fee net investment income for that quarter. The 100% “catch-up” provision for pre-Incentive Fee net investment income in excess of the 1.5% “hurdle rate” is intended to provide the Adviser with an Incentive Fee of 17.5% on all pre-Incentive Fee net investment income when that amount equals 1.82% in a quarter (7.28% annualized), which is the rate at which catch-up is achieved. Once the “hurdle rate” is reached and catch-up is achieved, 17.5% of any pre-Incentive Fee net investment income in excess of 1.82% in any quarter is payable to the Adviser.

Pre-Incentive Fee net investment income means dividends, interest and fee income accrued by the Company during the calendar quarter, minus the Company’s operating expenses for the quarter (including the Management Fee, expenses payable under the Administration Agreement to the Administrator, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the Incentive Fee). Pre-Incentive Fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay-in-kind interest and zero coupon securities), accrued income that the Company may not have received in cash. Pre-Incentive Fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital gains or losses.

(ii)

The second component, payable at the end of each fiscal year in arrears, equaled 15% through March 31, 2014 and, beginning April 1, 2014, equals a weighted percentage of cumulative realized capital gains from the Company’s inception to the end of that fiscal year, less cumulative realized capital losses and unrealized capital losses. This component of the Incentive Fee is referred to as the Capital Gains Fee. Each year, the fee paid for this component of the Incentive Fee is net of the aggregate amount of any previously paid Capital Gains Fee for prior periods. For capital gains that accrue following March 31, 2014, the Incentive Fee rate is 17.5%. The Company accrues, but does not pay, a capital gains Incentive Fee with respect to unrealized

capital gains because a capital gains Incentive Fee would be owed to the Adviser if the Company were to sell the relevant investment and realize a capital gain. The weighted percentage was intended to ensure that for each fiscal year following the completion of the IPO, the portion of the Company’s realized capital gains that accrued prior to March 31, 2014, was subject to an Incentive Fee rate of 15% and the portion of the Company’s realized capital gains that accrued beginning April 1, 2014 is subject to an Incentive Fee rate of 17.5%.

For purposes of determining whether pre-Incentive Fee net investment income exceeds the hurdle rate, pre-Incentive Fee net investment income is expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter.

Section 205(b)(3) of the Investment Advisers Act of 1940, as amended, or the Advisers Act, prohibits the Adviser from receiving the payment of fees on unrealized gains until those gains are realized, if ever. There can be no assurance that such unrealized gains will be realized in the future.

For the three months ended March 31, 2021 and 2020, Incentive Fees were $12.3 million and $7.1 million, respectively, of which $7.8 million and $7.1 million, respectively, were realized and payable to the Adviser. For the three months ended March 31, 2021, $4.5 million of Incentive Fees was accrued related to cumulative unrealized capital gains in excess of cumulative net realized capital gains less any cumulative unrealized losses and capital gains incentive fees paid inception to date. For the three months ended March 31, 2020, no Incentive Fees were accrued related to capital gains.

Since the Company’s IPO, with the exception of its waiver of Management Fees and certain Incentive Fees attributable to the Company’s ownership of certain investments and the Leverage Waiver, the Adviser has not waived its right to receive any Management Fees or Incentive Fees payable pursuant to the Investment Advisory Agreement.

In November 2020, the Board renewed the Investment Advisory Agreement. Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect until November 2021, and may be extended subject to required approvals. The Investment Advisory Agreement will automatically terminate in the event of an assignment and may be terminated by either party without penalty upon 60 days’ written notice to the other party.

From time to time, the Adviser may pay amounts owed by the Company to third-party providers of goods or services, including the Board, and the Company will subsequently reimburse the Adviser for such amounts paid on its behalf. Amounts payable to the Adviser are settled in the normal course of business without formal payment terms.

4. Investments at Fair Value

Under the 1940 Act, the Company is required to separately identify non-controlled investments where it owns 5% or more of a portfolio company’s outstanding voting securities as investments in “affiliated” companies. In addition, under the 1940 Act, the Company is required to separately identify investments where it owns more than 25% of a portfolio company’s outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company as investments in “controlled” companies. Detailed information with respect to the Company’s non-controlled, non-affiliated; non-controlled, affiliated; and controlled, affiliated investments is contained in the accompanying consolidated financial statements, including the consolidated schedules of investments. The information in the tables below is presented on an aggregate portfolio basis, without regard to whether they are non-controlled, non-affiliated; non-controlled, affiliated; or controlled, affiliated investments.

Investments at fair value consisted of the following at March 31, 2021 and December 31, 2020:

	March 31, 2021
	Amortized Cost ⁽¹⁾		Fair Value		Net Unrealized Gain (Loss)
First-lien debt investments	$	2,223,472	$	2,259,671	$	36,199
Second-lien debt investments		5,168		5,506		338
Mezzanine debt investments		8,868		14,171		5,303
Equity and other investments		93,952		103,398		9,446
Total Investments	$	2,331,460	$	2,382,746	$	51,286

	December 31, 2020
	Amortized Cost ⁽¹⁾		Fair Value		Net Unrealized Gain (Loss)
First-lien debt investments	$	2,165,100	$	2,196,910	$	31,810
Second-lien debt investments		4,991		5,037		46
Mezzanine debt investments		8,223		10,982		2,759
Equity and other investments		80,714		85,941		5,227
Total Investments	$	2,259,028	$	2,298,870	$	39,842

(1)	The amortized cost represents the original cost adjusted for the amortization of discounts or premiums, as applicable, on debt investments using the effective interest method.

The industry composition of investments at fair value at March 31, 2021 and December 31, 2020 is as follows:

	March 31, 2021			December 31, 2020
Business services		22.2	%		22.2	%
Communications		1.9	%		2.0	%
Education		10.9	%		11.2	%
Financial services		14.7	%		15.7	%
Healthcare		6.7	%		8.3	%
Hotel, gaming and leisure		1.6	%		1.6	%
Human resource support services		11.2	%		9.9	%
Insurance		2.2	%		2.3	%
Internet services		6.5	%		5.2	%
Marketing services		1.9	%		2.0	%
Office products		0.3	%		0.3	%
Oil, gas and consumable fuels		1.7	%		1.7	%
Other		2.6	%		1.3	%
Pharmaceuticals		2.5	%		2.8	%
Real Estate		1.7	%		1.7	%
Retail and consumer products		11.4	%		11.8	%
Total		100.0	%		100.0	%

The geographic composition of investments at fair value at March 31, 2021 and December 31, 2020 is as follows:

	March 31, 2021			December 31, 2020
United States
Midwest		15.7	%		13.4	%
Northeast		16.6	%		16.9	%
South		23.0	%		24.1	%
West		37.3	%		38.1	%
Australia		1.7	%		1.7	%
Bermuda		1.7	%		1.7	%
Canada		4.0	%		4.1	%
Total		100.0	%		100.0	%

5. Derivatives

Interest Rate Swaps

In February 2017, in connection with the issuance of the 2022 Convertible Notes, the Company entered into an interest rate swap transaction with a $115.0 million notional amount. The Company receives fixed rate interest at 4.50% and pays variable rate interest based on three-month LIBOR plus 2.37%. The swap transaction matures on August 1, 2022, matching the maturity date of the 2022 Convertible Notes.

In January 2018, in connection with the issuance of the 2023 Notes, the Company entered into an interest rate swap transaction with a $150.0 million notional amount. The Company receives fixed rate interest at 4.50% and pays variable rate interest based on three-month LIBOR plus 1.99%. The swap transaction matures on January 22, 2023, matching the maturity date of the 2023 Notes.

In June 2018, in connection with the reopening and issuance of additional 2022 Convertible Notes, the Company entered into two interest rate swap transactions with notional amounts of $50.0 million and $7.5 million, respectively. The Company receives fixed rate interest on each swap at 4.50%, and pays variable rate interest based on three-month LIBOR plus 1.59%, and 1.60%, respectively. The swap transactions mature on August 1, 2022, matching the maturity date of the 2022 Convertible Notes.

In June 2019, upon maturity of the original swap transaction on an existing fixed rate investment, the Company entered into an interest rate swap transaction with a $91.5 million notional amount. The Company received three-month LIBOR and paid fixed rate interest at 1.97%. In April 2020, in connection with the repayment of the underlying investment, the Company terminated this interest rate swap.

In August 2019, in connection with two fixed rate investments, the Company entered into two interest rate swap transactions with notional amounts of $11.7 million and $3.2 million, respectively. The Company receives three-month LIBOR and pays fixed rate interest at 1.47% and 1.36%, respectively. The $11.7 million notional swap transaction matures on July 30, 2021, matching the current expected repayment date of the investment. In December 2020, in connection with the repayment of the underlying investment, the Company terminated the $3.2 million notional interest rate swap resulting in a realized loss of less than $0.1 million.

In November 2019, in connection with the issuance of the 2024 Notes, the Company entered into an interest rate swap transaction with a $300.0 million notional amount. The Company receives fixed rate interest at 3.875% and pays variable rate interest based on three-month LIBOR plus 2.25%. The swap transaction matures on November 1, 2024, matching the maturity date of the 2024 Notes. The Company designated this interest rate swap as the hedging instrument in a hedge accounting relationship with the 2024 Notes.

In February 2020, in connection with the reopening and issuance of additional 2024 Notes, the Company entered into an interest rate swap transaction with a $50.0 million notional amount. The Company receives fixed rate interest at 3.875% and pays variable rate interest based on three-month LIBOR plus 2.46%. The swap transaction matures on November 1, 2024, matching the maturity date of the additional 2024 Notes. The Company designated this interest rate swap as the hedging instrument in a hedge accounting relationship with the additional 2024 Notes.

In May 2020, in connection with the repurchase of $29.7 million of the 2022 Convertible Notes, the Company entered into two interest rate swap transactions with $27.5 million and $2.2 million notional amounts. The Company pays fixed rate interest at 4.5% and receives variable rate interest based on three-month LIBOR plus 2.11%. The swap transactions mature on August 1, 2022, matching the maturity date of the 2022 Convertible Notes.

In May 2020, in connection with the repurchase of $2.5 million of the 2024 Notes, the Company entered into an interest rate swap transaction with $2.5 million notional amount. The Company pays fixed rate interest at 3.875% and receives variable rate interest based on three-month LIBOR plus 2.28%. The swap transaction matures on November 1, 2024, matching the maturity date of the 2024 Notes. At the same time, the Company de-designated $2.5 million notional amount of the existing interest rate swaps related to the 2024 Notes as hedging instruments in a hedge accounting relationship with the 2024 Notes.

In June 2020, in connection with two fixed rate investments, the Company entered into two interest rate swap transactions with notional amounts of $5.0 million and $2.2 million. The Company receives three-month LIBOR and pays fixed rate interest at 0.33% and 0.26%, respectively. The $5.0 million notional swap transaction matures on June 9, 2023, matching the expected repayment date of the investment. In December 2020, in connection with the repayment of the underlying investment, the Company terminated the $2.2 million notional interest rate swap resulting in a realized loss of less than $0.1 million.

In February 2021, in connection with the issuance of the 2026 Notes, the Company entered into an interest rate swap transaction with a $300.0 million notional amount. The Company receives fixed rate interest at 2.50% and pays variable rate interest based on three-month LIBOR plus 1.91%. The swap transaction matures on August 1, 2026, matching the maturity date of the 2026 Notes. The Company designated this interest rate swap as the hedging instrument in a hedge accounting relationship with the 2026 Notes.

The following tables present the amounts paid and received on the Company’s interest rate swap transactions, excluding upfront fees, for the three months ended March 31, 2021 and 2020:

				For the Three Months Ended March 31, 2021
	Maturity Date	Notional Amount		Paid			Received		Net
Interest rate swap ⁽¹⁾	7/30/2021	$	11,700	$	(41	)	$	7	$	(34	)
Interest rate swap	8/1/2022		115,000		(754	)		1,294		540
Interest rate swap	8/1/2022		50,000		(231	)		563		332
Interest rate swap	8/1/2022		7,500		(35	)		84		49
Interest rate swap	8/1/2022		27,531		(310	)		163		(147	)
Interest rate swap	8/1/2022		2,160		(24	)		13		(11	)
Interest rate swap	1/22/2023		150,000		(842	)		1,688		846
Interest rate swap ⁽¹⁾	6/9/2023		5,000		(4	)		3		(1	)
Interest rate swap	11/1/2024		300,000		(1,815	)		2,906		1,091
Interest rate swap	11/1/2024		50,000		(324	)		484		160
Interest rate swap	11/1/2024		2,500		(23	)		15		(8	)
Interest rate swap	8/1/2026		300,000		(853	)		1,083		230
Total		$	1,021,391	$	(5,256	)	$	8,303	$	3,047

				For the Three Months Ended March 31, 2020
	Maturity Date	Notional Amount		Paid			Received		Net
Interest rate swap ⁽¹⁾	6/25/2020	$	91,500	$	(456	)	$	440	$	(16	)
Interest rate swap ⁽¹⁾	7/30/2021		11,700		(43	)		56		13
Interest rate swap ⁽¹⁾	7/29/2022		3,200		(11	)		16		5
Interest rate swap	8/1/2022		115,000		(1,259	)		1,294		35
Interest rate swap	8/1/2022		50,000		(449	)		563		114
Interest rate swap	8/1/2022		7,500		(68	)		84		16
Interest rate swap	1/22/2023		150,000		(1,500	)		1,688		188
Interest rate swap	11/1/2024		300,000		(3,149	)		2,906		(243	)
Interest rate swap	11/1/2024		50,000		(283	)		269		(14	)
Total		$	778,900	$	(7,218	)	$	7,316	$	98

(1)	The notional amount of certain interest rate swaps may be more or less than the Company’s investment in individual portfolio companies as a result of arrangements with other lenders in the syndicate, amortization, or interest income paid-in-kind.

For the three months ended March 31, 2021 and 2020, the Company recognized $1.8 million in net change in unrealized losses and $9.2 million in net change in unrealized gains, respectively, on interest rate swaps not designated as hedging instruments in the consolidated statement of operations related to the swap transactions. For the three months ended March 31, 2021 and 2020, the Company recognized $14.6 million in net change in unrealized losses and $18.8 million in net change in unrealized gains, respectively, on interest rate swaps designated as hedging instruments as a component of interest expense in the consolidated statement of operations. For the three months ended March 31, 2021 and 2020, this amount is offset by a decrease of $5.6 million and increase of $18.8 million, respectively, for a change in the carrying value of the 2024 Notes and a decrease of $9.0 million, for a change in carrying value of the 2026 Notes.

As of March 31, 2021, the swap transactions had a fair value of $12.2 million which is netted against cash collateral received on the Company’s consolidated balance sheet. As of December 31, 2020, the swap transactions had a fair value of $28.6 million which is netted against cash collateral on the Company’s consolidated balance sheet.

The Company is required under the terms of its derivatives agreements to pledge assets as collateral to secure its obligations under the derivatives. The amount of collateral required varies over time based on the mark-to-market value, notional amount and remaining term of the derivatives, and may exceed the amount owed by the Company on a mark-to-market basis. Any failure by the Company to fulfill any collateral requirement (e.g., a so-called “margin call”) may result in a default. In the event of a default by a counterparty, the Company would be an unsecured creditor to the extent of any such overcollateralization.

As of March 31, 2021, $16.3 million of cash is pledged as collateral under the Company’s derivative instruments and is included in restricted cash as a component of cash and cash equivalents on the Company’s consolidated balance sheet. As of December 31, 2020, $10.8 million of cash is pledged as collateral under the Company’s derivative instruments and is included in restricted cash as a component of cash and cash equivalents on the Company’s consolidated balance sheet.

6. Fair Value of Financial Instruments

Investments

The following tables present fair value measurements of investments as of March 31, 2021 and December 31, 2020:

	Fair Value Hierarchy at March 31, 2021
	Level 1		Level 2		Level 3		Total
First-lien debt investments	$	—	$	6,491	$	2,253,180	$	2,259,671
Second-lien debt investments		—		—		5,506		5,506
Mezzanine debt investments		—		—		14,171		14,171
Equity and other investments		8		35,350		68,040		103,398
Total investments at fair value	$	8	$	41,841	$	2,340,897	$	2,382,746
Interest rate swaps		—		12,199		—		12,199
Total	$	8	$	54,040	$	2,340,897	$	2,394,945

	Fair Value Hierarchy at December 31, 2020
	Level 1		Level 2		Level 3		Total
First-lien debt investments	$	—	$	38,359	$	2,158,551	$	2,196,910
Second-lien debt investments		—		—		5,037		5,037
Mezzanine debt investments		—		—		10,982		10,982
Equity and other investments		3		10,788		75,150		85,941
Total investments at fair value	$	3	$	49,147	$	2,249,720	$	2,298,870
Interest rate swaps		—		28,638		—		28,638
Total	$	3	$	77,785	$	2,249,720	$	2,327,508

Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur.

The following tables present the changes in the fair value of investments for which Level 3 inputs were used to determine the fair value as of and for the three months ended March 31, 2021 and 2020:

	As of and for the Three Months Ended
	March 31, 2021
	First-lien debt investments			Second-lien debt investments		Mezzanine debt investments		Equity and other investments			Total
Balance, beginning of period	$	2,158,551		$	5,037	$	10,982	$	75,150		$	2,249,720
Purchases or originations		152,707			—		545		653			153,905
Repayments / redemptions		(74,042	)		—		—		(11,827	)		(85,869	)
Paid-in-kind interest		1,866			161		98		—			2,125
Net change in unrealized gains (losses)		10,828			292		2,543		(12	)		13,651
Net realized gains		30			—		—		10,689			10,719
Net amortization of discount on securities		3,240			16		3		—			3,259
Transfers within Level 3		—			—		—		—			—
Transfers into (out of) Level 3		—			—		—		(6,613	)		(6,613	)
Balance, End of Period	$	2,253,180		$	5,506	$	14,171	$	68,040		$	2,340,897

	As of and for the Three Months Ended
	March 31, 2020
	First-lien debt investments			Second-lien debt investments			Mezzanine debt investments			Equity and other investments			Total
Balance, beginning of period	$	2,158,927		$	4,147		$	2,550		$	63,107		$	2,228,731
Purchases or originations		115,294			209			304			477			116,284
Repayments / redemptions		(218,019	)		—			—			—			(218,019	)
Paid-in-kind interest		1,744			—			51			—			1,795
Net change in unrealized losses		(85,669	)		(326	)		(53	)		(11,123	)		(97,171	)
Net realized gains (losses)		(2,163	)		—			—			—			(2,163	)
Net amortization of discount on securities		6,822			—			3			—			6,825
Transfers within Level 3		(23	)		—			—			23			—
Transfers into (out of) Level 3		—			—			—			—			—
Balance, End of Period	$	1,976,913		$	4,030		$	2,855		$	52,484		$	2,036,282

The following tables present information with respect to the net change in unrealized gains or losses on investments for which Level 3 inputs were used in determining fair value that are still held by the Company at March 31, 2021 and 2020:

	Net Change in Unrealized		Net Change in Unrealized
	Gains or (Losses)		Gains or (Losses)
	for the Three Months Ended		for the Three Months Ended
	March 31, 2021 on		March 31, 2020 on
	Investments Held at		Investments Held at
	March 31, 2021		March 31, 2020
First-lien debt investments	$	11,962	$	(78,748	)
Second-lien debt investments		292		(326	)
Mezzanine debt investments		2,543		(53	)
Equity and other investments		7,823		(11,123	)
Total	$	22,620	$	(90,250	)

The following tables present the fair value of Level 3 Investments at fair value and the significant unobservable inputs used in the valuations as of March 31, 2021 and December 31, 2020. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.

March 31, 2021

Valuation

Unobservable

Range (Weighted

Impact to Valuation

from an

Fair Value

Technique

Input

Average)

Increase to Input

First-lien debt investments

2,253,180

Income approach ⁽¹⁾

Discount rate

5.9% — 13.9% (9.0%)

Decrease

Second-lien debt investments

5,506

Income approach

Discount rate

9.8% — 9.8% (9.8%)

Decrease

Mezzanine debt investments

6,855

Income approach⁽²⁾

Discount rate

10.1% — 10.1% (10.1%)

Decrease

Mezzanine debt investments

7,316

Market Multiple

Comparable multiple

6.0x — 6.7x (6.4x)

Increase

Equity and other investments

68,040

Market Multiple ⁽³⁾

Comparable multiple

4.5x — 18.0x (8.1x)

Increase

Total

2,340,897

(1)	Includes $0.9 million of debt investments which, due to proximity of the transaction relative to the measurement date were valued using the cost of the investments.

(2)	Includes $0.5 million of debt investments which were valued using an asset valuation waterfall.

(3)

Includes $6.9 million of equity investments which were valued using an asset valuation waterfall, $6.5 million of equity investments using a Black-Scholes model, $16.8 million of equity investments using a discounted cash flow approach, and $6.3 million of equity investments which, due to the proximity of the transactions relative to the measurement date, were valued using the cost of the investments.

December 31, 2020

Valuation

Unobservable

Range (Weighted

Impact to Valuation

from an

Fair Value

Technique

Input

Average)

Increase to Input

First-lien debt investments

2,158,551

Income approach ^(1)<

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. junior Avg

Sixth Street Specialty Lending (TSLX) 10-Q2021 Q1 Quarterly report

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